PE Outlook: Value Creation is Key
A new 2026 Private Equity outlook from Bain & Company and StepStone Group finds value creation is now the critical driver of success for general partners. The report also highlights sustained demand for co-investments and the growing use of secondaries as a portfolio management tool.
The shift to value creation comes as private equity returns lag public benchmarks, a reversal from the past two decades. Firms now face a record backlog of unsold companies worth trillions of dollars, acquired in an era of cheaper money, making operational improvement the primary path to generating returns. Disagreements on valuation remain the single biggest obstacle to closing new deals. Operational value creation focuses on tangible improvements like streamlining supply chains, implementing new technology, and optimizing pricing strategies. Many firms are also pursuing "buy-and-build" strategies, where a platform company grows by acquiring smaller, complementary businesses to gain scale and enter new markets. The integration of AI and data analytics is accelerating this, enabling faster commercial diligence and identifying margin opportunities. The sustained demand for co-investments is driven by Limited Partners (LPs) seeking more control, greater transparency, and lower fees compared to traditional blind-pool fund commitments. This structure allows LPs to invest directly into specific companies alongside a General Partner (GP), giving them targeted exposure to high-conviction deals. Sectors like healthcare, technology infrastructure (especially AI and data centers), and energy are attracting significant co-investment capital. The secondaries market is surging as LPs seek liquidity amid a "distribution drought"—the slow return of capital from funds. The market volume is expected to exceed $200 billion, a significant jump from the record of around $160 billion in previous years. This market allows LPs to sell their fund stakes to other investors, providing an alternative path to cash. GPs are increasingly using the secondaries market for strategic purposes through "continuation vehicles." This allows a GP to sell a portfolio company from an older fund to a new vehicle they create, providing liquidity to the original LPs while continuing to manage the asset. About a quarter of GPs have recently used a continuation vehicle, and roughly 40% expect to explore one in the next year or two.
