Private Equity Focus Shifts to Value Creation
A new 2026 outlook from Bain & Company and StepStone Group finds that value creation, rather than market timing, has become the critical driver of success in private equity. The report also highlights sustained demand for co-investments and the rising use of secondaries as a key portfolio management tool for general partners.
The private equity playbook has fundamentally changed, moving away from reliance on financial leverage and rising market valuations to drive returns. With 79% of general partners (GPs) expecting purchase price multiples to plateau at historically high levels, the focus is now on tangible operational improvements to generate value. Disagreements over valuation remained the single biggest reason deals failed to close in 2025. This operational focus has given rise to the "operator CFO," who acts as a strategic architect for value creation by modernizing finance technology and embedding AI. One dominant strategy is "buy-and-build," where a PE firm acquires a platform company and then scales it through a series of smaller, strategic add-on acquisitions to unlock new markets and capabilities. To address a persistent liquidity logjam, the secondary market has exploded, with transaction volumes expected to exceed a record $200 billion for 2025. These markets, once a niche option, are now a primary tool for investors (LPs) and fund managers (GPs) to generate cash distributions and actively manage their portfolios. Continuation vehicles (CVs) are a key part of this trend, allowing GPs to hold onto prized assets for longer while still returning capital to investors. A recent survey found that a quarter of GPs had recently completed a CV transaction, and about 40% plan to explore one in the next two years, primarily to generate liquidity. Investors are also demanding more direct access to deals, fueling sustained demand for co-investment opportunities. For many limited partners, access to co-investments has become a requirement for committing to a fund, as the focus shifts from internal rate of return (IRR) to actual cash-in-hand, or Distributions to Paid-in Capital (DPI). While artificial intelligence is a major theme, its primary impact is currently in deal sourcing and due diligence, where it can rapidly analyze vast amounts of data. Nearly 40% of GPs do not expect AI to have a material financial impact on their portfolio companies' performance in 2026.
