Private Equity Investment Outlook Q4: Uneven recovery, selective opportunity

Private equity is recovering unevenly, making disciplined selection of smaller buyouts, continuation investments and diversified early-stage venture more attractive than broad market exposure.

• Private equity activity improved in Q2 2026, but deal count fell to its lowest level since Q3 2021 while deal value remained elevated because of a few AI-related mega-rounds; exits also declined to their lowest count since Q3 2021.
• Large US buyouts from the 2021–2022 vintages carry the greatest valuation and leverage overhang, whereas small and mid-sized buyouts benefit from lower debt, less exposure to geopolitical disruption and greater scope for operational value creation.
• Buyouts with enterprise values below $1 billion traded at an average 11.0x EBITDA entry multiple in Q2 2026, versus 14.0x for large buyouts and a roughly 11.0x discount to comparable small-cap public equities.
• Secondary-market activity reached a record in H1 2026, while continuation investments are becoming structural; Schroders estimates their volume could exceed $330 billion by 2035, more than three times the current level.
• Venture valuations exceeded their Q3 2021 peaks across stages, driven especially by late-stage AI premiums, while the valuation gap between late- and early-stage companies widened; biotechnology and diversified global early-stage strategies appear relatively more attractive.

Takeaway: Investors should prioritise disciplined entry pricing, smaller and operationally improvable companies, and selective continuation or early-stage venture exposure, while avoiding concentrated bets on highly valued AI businesses and leveraged large buyouts.