Private equity enters a new phase of opportunity after a cautious 2025

Private equity markets appear to be turning a corner after a year defined by uneven recovery and cautious deployment.

The Global PE Trends 2025 and Outlook for 2026 report from law firm Morrison & Foerster reviews how last year’s expectations played out and outlines what dealmakers and investors can expect next. The findings point to renewed opportunity, but with greater selectivity, complex liquidity planning and deeper sector specialization shaping strategies in the year ahead.

The report finds that many of the prior year’s forecasts largely materialized. Deal activity strengthened compared with the previous slowdown, though volumes remained below historic highs. Total deal value increased, driven by fewer but larger and more strategic transactions. Sponsors focused on targeted acquisitions that fit portfolio priorities rather than broad-based buying sprees, reflecting continued macroeconomic uncertainty and disciplined underwriting.

Trade and regulatory risks persisted throughout 2025. Tariff policy shifts introduced friction in some sectors and cross-border transactions but did not stall dealmaking outright. Regulatory scrutiny remained especially relevant for large or international deals, with national security and foreign investment reviews influencing transaction timelines and structure. Advisors are increasingly required to anticipate these constraints early in the deal process.

While tech deal volumes softened slightly, total transaction values rose significantly, reflecting high-conviction investments in software, semiconductors, AI and data center infrastructure.

Investors are prioritizing assets that enable digital transformation and scalable efficiency across portfolio companies. Healthcare and life sciences also remained strategically important, though activity was more measured than in prior boom years. In China, middle-market control acquisitions and sovereign wealth-backed co-investments were notable features of the market.

The report also notes a shift in how sustainability is discussed. The term ESG has become politically sensitive in some markets, but underlying sustainability initiatives remain embedded in investment decision-making and long-term value creation.

2026 Outlook

Looking ahead, the outlook for 2026 is cautiously optimistic. Deal flow is expected to expand gradually as financing conditions improve and confidence rebuilds. A reopening IPO window, greater use of GP-led solutions and easing borrowing costs should support both exits and new investments. Take-private transactions and corporate carve-outs are projected to remain important deal sources, especially in software, industrial technology and healthcare.

Liquidity innovation is another defining trend. Continuation vehicles, secondaries and structured financing tools are becoming mainstream solutions to manage fund durations and investor distributions. Cross-border activity should resume selectively, particularly between the US and Europe, as sponsors navigate policy risk and supply chain realignment opportunities. Asia is also expected to draw increased attention, with Japan and India benefiting from growth prospects and diversification strategies, and China showing signs of gradual stabilization.

Despite significant dry powder, fundraising is likely to favor established managers as limited partners remain cautious amid slower distributions. Artificial intelligence is expected to play a growing role not only in portfolio company strategy but also in underwriting and deal sourcing.