The first half of 2026 highlights a definitive structural shift in global private and public markets. While the previous decade heavily favored "asset-light," software, and technology-driven business models, macro headwinds and technological transformations have sparked a pronounced rotation into "hard assets" and the "real economy". Despite severe geopolitical volatility and localized stress in certain asset classes, aggregate private market activity has demonstrated remarkable institutional resilience.
1. Macroeconomic Drivers & Market Volatility
The "Saas-pocalypse" & AI Disintermediation: Public and private software valuations faced severe re-ratings through early 2026. Driven by disintermediation fears—where generative AI models allow enterprises to code applications internally rather than paying for legacy SaaS licenses—the Morgan Stanley SaaS Index shed nearly 30% of its market capitalization through late February. Valuation multiples crashed below 4x sales, down sharply from their post-pandemic peak of nearly 24x sales.
The Hyperscaler Valuation Reset: The "Magnificent 7" megacap technology stocks saw a collective 6.8% drawdown in early 2026. This decline was driven by intense capital expenditure concentration, as massive investments into artificial intelligence infrastructure began significantly eating into free cash flow.
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The Strait of Hormuz Supply Shock: On February 28, 2026, the outbreak of conflict in the Middle East effectively closed the Strait of Hormuz. The macro impact was immediate: Brent crude shot up from ~$70/bbl to over $100/bbl within two weeks. The shutdown disrupted a vital artery controlling 20% of global oil and natural gas, half of global urea (fertilizer), and one-third of global helium (vital for microchip fabrication). This inflationary cost shock caused global industrial indices to drop 8.5% in March, hit energy-import-dependent nations heavily (the Nikkei fell 14% and South Korea's KOSPI fell nearly 20%), and slowed down regional APAC M&A deal flow by 30%.
Late-Quarter Macro Resilience: In a surprising reversal, by the end of April 2026, the S&P 500, Nikkei, and KOSPI rebounded to new record highs. Corporate earnings in the US remained highly resilient and largely beat consensus estimates, demonstrating an underlying macro robustness.
2. Trends in Private Equity & Buyouts
The Rotation to "Hard Assets": Private equity dealmaking has shifted drastically to match the real-economy rotation. In Q1 2026, information industries (computers, electronics, telecom) fell to just an 11% share of buyout deal volume, down from 27% a year ago. Conversely, heavy "hard" industries—including utilities, energy, chemicals, and machinery—surged to make up 46% of total transaction volumes, compared to a mere 13% in Q1 2025.
Data Infrastructure Tailwinds: The Utility & Energy sector is experiencing a historic investment boom, heavily supported by accelerating structural power demands required to fuel AI compute data centers. After a massive 2025 which saw $67.9 billion in deals (the highest since 2007), Q1 2026 alone printed a staggering $52.8 billion, putting the sector on pace to smash all prior records.
Resilient LBO Volumes: Global LBO volume reached $126 billion in Q1 2026. While this represents a 20% decline from Q4 2025 and a minor 3.5% drop year-over-year, it tracking well ahead of the 2023–2024 quarterly average of $97 billion, underscoring private equity's capacity to navigate broader macro uncertainty.
Venture Capital Bifurcation: Venture capital logged its most active dealmaking quarter of the decade at $320 billion. However, this volume is intensely concentrated: over half of the amount was driven exclusively by three AI mega-deals (OpenAI, Anthropic, and X.AI). Outside of AI, defense tech is emerging as a major thematic recipient of capital due to escalating global geopolitical risks, highlighted by multi-billion-dollar rounds for autonomous defense providers like Anduril Industries ($4 billion) and Saronic Technologies ($1.75 billion).
3. Exit Dynamics & LP Liquidity Pressures
The Cumulative Cash Deficit: Sustained weakness in private equity exits continues to strain institutional investors. Buyout exit volumes fell 13% year-over-year to $99 billion, while VC exits collapsed 41% year-over-year to $74 billion. Cumulatively since 2022, buyout LPs are $89 billion net out-of-pocket. When factoring in venture capital and growth equity, institutional LPs are staring at a massive $260 billion cumulative cash flow deficit.
Rising Exit Multiples: A bright spot for distributions is the recent rebound in exit multiples. Median exit EBITDA multiples for late 2025 transactions climbed to the 14.8x–15.5x range, up markedly from the 11.0x–13.0x seen during the 2022–2024 downturn. This expansion is allowing GPs to finally clear out the backlog of high-priced assets originally acquired during the 2020–2021 pandemic boom without taking losses on purchase price multiples.
The Secondary Market Supply/Demand Imbalance: To manufacture liquidity, LPs and GPs pushed the secondary market to a record-breaking $205 billion in 2025. Q1 2026 maintained a swift pace at $40 billion in volume. Because secondary demand is so high, dry powder has fallen to less than one year of transaction volume. This has firmly tilted pricing and fundamentals in favor of secondary buyers, allowing them to cherry-pick younger, higher-quality assets at attractive discounts.
4. Liquid & Private Credit Outlook
Healthy Credit Markets with Widening Spreads: Direct lending and broader private credit channels remain highly functional, with US direct lending volume increasing 26% year-over-year in Q1. However, macro uncertainty and lower inflows into retail evergreen funds have caused credit spreads to widen slightly from the historic tights of 2025. Non-call provisions on 2022–2023 vintage loans have expired, which slowed down the aggressive repricing wave seen over the last two years.
Bifurcated Default Profiles: Corporate default rates across private credit and leveraged loans remain stable and near historical averages (US LSTA default rate at 1.44%, Europe ELLI at 1.42%). Furthermore, distressed exchanges drop significantly to roughly 3.5%.
The Software Credit Crunch: The direct lending market is showing deep localized credit stress specifically within technology portfolios. Leveraged loans to software businesses traded down nearly 8% in Q1 2026, compared to a modest 1.5% decline for the broader market index.
Carlyle notes that the primary driver of this software credit stress is not structural revenue disintermediation—as chief executives are currently funding their AI initiatives via reduced consulting spend and corporate hiring freezes rather than canceling software licenses. Rather, it is a valuation overhang. These software businesses were underwritten at peak multiples with thin equity cushions, leaving very little room for error as capital costs remain elevated.
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