In 2026, one dynamic is defining private equity: divergence.
Depending on where you sit, the market looks completely different.
For large asset managers, business is booming. For everyone else, it’s at a standstill.
Why private equity is diverging:
The scale premium is widening
Exits are concentrating at the top
LP capital is harder to come by
Read the full breakdown below.
On the Radar
Other reads worth your time this week.
Secondaries’ next layer raises old questions (Pitchbook)
5 Forces Driving M&A in 2026 (Morgan Stanley)
Private Equity is K-Shaped
2025 marked a comeback year for private equity. At least at face value.
Global buyout volume surged 44% to ~$900B, the second highest on record, only behind the 2021 boom.
But the rebound wasn’t widespread.
Megadeals ($10B+) drove a record 70% of the growth in deal volume.
In other words, most of the recovery belonged to the top of the market.
Scale is King
From weakening consumer demand and inflation, to trade disruption and tariffs, to widespread geopolitical conflict, uncertainty has been the only constant since the start of 2025.
This backdrop has made scale increasingly attractive to investors.
Today, the valuation premium between large-cap and small-cap companies is near its Covid-era peak, and well above levels seen in calmer markets.
The rationale is simple: scale means more pricing power and deeper market positioning.
In an uncertain market, size is a safe bet.
The Exit Lag
Lower rates have helped thaw private equity’s struggling exit market, but not equally.
A clear lag has emerged between large cap and middle market exits (Pitchbook):
Middle Market Exits: +2% in count, +6% in value
Total Market: +17% in count, +90% in value
The gap is hard to ignore. While the middle market eked out a small recovery, total exit value nearly doubled, driven by larger exits over $1B.
Fundraising Flows
Even fundraising is feeling the divide.
Amid a growing exit backlog and historically weak distributions, LPs have become far more selective.
For the second year in a row, buyout fundraising declined, reaching its lowest level since 2020.
But the most notable shift has been where capital is going.
With fewer fundraising dollars to go around, LPs have rotated sharply from smaller funds into larger ones.
Funds under $1B lost ~12% of their historical fundraising share, which has shifted directly to larger managers.
The New Reality
Private equity capital is consolidating at the top, at every stage of the industry.
Deal size continues to grow. Exits are rewarding scale. LPs are betting on bigger funds.
For the largest managers, the environment has never been more favorable.
For everyone else, the path forward is getting harder.
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