Looking ahead to 2026: predictions for Private Capital markets

“As capital re-enters private markets and AI reshapes how value is created, PE firms must rebuild their playbooks across fundraising, operations, ESG, and fund structures.”

Private capital enters 2026 in transition, rather than euphoria.

Fundraising capacity returns as the denominator effect fades, but capital is more elective, operational proof replaces promises, AI shifts from pilots to production, ESG reporting finally begins to converge, and evergreen structures reach structural relevance in the market.

1. The denominator effect fades, discipline stays

After 18 months of being overallocated to private markets, many LPs spent 2023–2024 throttling commitments as public market drawdowns distorted portfolio weights.

As public equities stabilised through 2025 and valuations recovered, the “denominator” began to normalise, restoring headroom for new private market commitments by pensions, insurers, and endowments.

By late 2025, LP activity was already recovering, with multiple surveys and fundraising snapshots pointing to a renewed but selective appetite for private strategies. Liquidity tools such as continuation vehicles, NAV loans, and secondary sales helped bridge the gap, but they did not eliminate the underlying need for traditional realisations.

Implications for 2026

H2 2026 is likely to be a materially better fundraising window than 2024–2025, but with a pronounced flight to quality.

Top-quartile platforms that can show firm-level “alpha” and consistent DPI are positioned to oversubscribe; others will face elongated fund raises.

GP-led secondaries and liquidity tools continue, but pressure eases as exit markets reopen and LP pacing plans normalise.

2. Operational value creation becomes the core credential

Post-2021, the contribution of multiple expansion to returns has structurally declined, while higher base rates have made leverage less of a differentiator.

Recent analysis of software deals shows that revenue growth and multiple expansion drove over 90% of value creation in the last decade, with margin improvement contributing only a small single-digit share, mostly in top-quartile deals that executed disciplined value-creation plans.

LPs are now explicitly underwriting operational capability rather than simply brand and past IRR.

In the 2026–2027 fundraising cycles and due diligence questions increasingly resemble management consulting case interviews:

-show the before/after,

-attribute uplift to specific levers, and

-isolate the operational effect from beta and timing.

What LPs will expect

Portfolio case studies that bridge from entry to exit EBITDA with a clear decomposition: market growth, pricing, mix, productivity, procurement, SG&A efficiency.

Evidence of scale in the firm’s operating model:

specialised value-creation teams,

sector operating partners, and

cross-portfolio playbooks,

not just a single “operating partner” name on the website.

What GPs will expect

Quantified proof that margin expansion and operational excellence are repeatable, not episodic.

Funds that can document a systematic value-creation engine will raise faster and can defend premium economics

Firms that remain primarily financial engineers, relying on leverage and market timing will struggle to differentiate in a crowded fundraising environment.

3. AI shifts from experiment to infrastructure

By 2024–2025, most sizeable PE platforms had at least piloted AI across sourcing, due diligence, and portfolio operations, but only a subset achieved repeatable, production-grade impact.

Case studies now show that disciplined implementation generates tangible value: Apollo, for example, has built structured AI capability-building into portfolio companies, focusing on concrete value pools and risk management rather than generic experimentation.

cross the industry, three AI use cases are emerging as consistently ROI-positive:

Document intelligence in due diligence: automated review and extraction from CIMs, contracts, and data rooms, cutting first-pass review time by well over half while improving coverage and consistency.

Commercial analytics in portfolio companies: churn prediction, pricing optimisation, and sales efficiency tools in SaaS and B2B services, boosting retention and unit economics.

Market and competitive intelligence: always-on scraping and synthesis of market signals, allowing deal and portfolio teams to track competitor moves, regulatory changes, and customer sentiment in near real time.

What changes in 2026

The pilots that proved ROI are scaled into the firm’s operating system; the “cool but marginal” experiments are quietly retired.

The performance gap widens between firms that have embedded AI into their value-creation and investment processes and those still operating largely manually.

The talent market tightens for hybrid profiles, data and AI specialists who understand both modern ML tooling and the economics of private markets.

4. ESG and sustainability reporting consolidate after peak chaos

By 2025, companies and sponsors were wrestling with a fragmented ESG landscape: overlapping frameworks (TCFD, SASB, GRI), diverging regional rules, and rising compliance cost., 2026 is the inflection where regulatory and standard-setting convergence begins to meaningfully simplify the picture.

Key drivers of consolidation include:

The EU’s Corporate Sustainability Reporting Directive (CSRD) becoming a de facto global benchmark for large multinational businesses.

The International Sustainability Standards Board (ISSB) integrating multiple legacy frameworks into a single, investor-focused baseline.

Climate-related disclosure rules in the US, if they withstand legal challenges, aligning more with global norms than diverging from them.

What changes for portfolio companies

ESG shifts from bespoke report-writing to standardised, data-driven disclosure governed by clear materiality.

Technology vendors and data providers consolidate, and internal ESG teams pivot from “what to report” toward “how to improve performance” on emissions, workforce, and governance.

Sponsors that invested early in auditable ESG data infrastructure and controls benefit from smoother diligence and higher exit readiness.

5. Evergreen structures reach structural relevance

Evergreen and hybrid fund structures, once niche, are scaling rapidly as managers respond to LP demand for greater liquidity flexibility and simpler commitment
mechanics.

In private credit alone, the number of evergreen funds has more than doubled in the last five years, and the overall count of evergreen vehicles across private
markets has grown at high double-digit annual rates.

Recent Preqin and market-structure primers highlight:

A record number of evergreen funds in market by mid-2025, with the fund universe roughly doubling every five years.

Strong growth expectations for private markets AUM over the next several years, with evergreen structures playing an increasingly important role in accessing retail
and private wealth capital.

LPs valuing evergreen funds for upfront capital draw, smoother liquidity windows, and the ability to adjust exposure without navigating traditional capital call
cycles.

How 2026 looks

Evergreen and hybrid structures approach a scale where they represent a meaningful share of total PE and private credit AUM rather than a footnote.

Traditional GPs launch evergreen products to defend LP relationships and tap private wealth channels, positioning them as “access” and “client-service”
innovations.

Clear structural segmentation emerges: perpetual vehicles for growth, real assets, and stable cash-flow strategies; closed-end funds for distressed, special
situations, and complex transformations.

As private capital enters 2026, the central challenge for practitioners is not predicting individual trends, but understanding how these forces intersect to reshape the industry’s operating system.

The easing of the denominator effect will restore fundraising capacity, but only for managers who can evidence operational value creation, embed AI where it demonstrably enhances judgment, navigate ESG’s new reporting equilibrium, and design structures aligned with evolving LP liquidity and access preferences.

Firms that treat these developments as a connected strategic agenda, rather than a set of parallel compliance tasks will be best positioned to deploy capital with conviction, attract and retain the right partners, and build portfolios that can compound through the next cycle of volatility and innovation.