A Clearer View of Private Equity

Recent headlines can paint a bleak picture for private equity: limited deal flow, fierce competition, stretched valuations, and scarce exits. AI disruption and geopolitical uncertainty have only heightened investor unease and confusion. Amid this noise, many investors are caught between competing narratives, unsure whether to commit capital or wait for clarity. But looking beyond the headlines reveals a more balanced and more constructive reality.

Click on each question to learn more.

1. Can private equity continue to outperform?

Private equity’s long-term track record remains compelling: over the past 25 years, the asset class has delivered approximately 4–5% of annualized excess return over public equities on a net basis.¹ Still, with public markets continuing to compound—S&P 500® returns are up approximately 9% year-to-date²—it is understandable that media, advisors, and investors are asking whether private equity can continue to deliver incremental value in portfolios. The question is a fair one, but history suggests that private equity’s outperformance has not been episodic; rather, it reflects structural advantages that persist across multiple market cycles.

It is important to look beyond recent public market performance and examine the structural differences in how private equity returns are generated. Private equity is a long-duration asset class where returns are driven less by market sentiment on a given day and more by a manager’s ability to create real value over time. That value creation requires significant operational effort from both fund managers and portfolio company management teams through strategic repositioning, revenue growth, margin improvement, talent upgrades, capital allocation, and disciplined exits, among other factors. In this context, private equity is not only a potential source of excess return; it can also serve as a differentiated return stream that helps diversify long-only public equity exposure. Even more so as U.S. public equity benchmarks have become increasingly concentrated in mega-cap technology companies and the number of public companies decreases as businesses stay private for longer.

While many managers may market themselves as operationally focused, they often remain reliant on leverage, multiple expansion, and market timing to boost returns. Today’s environment of higher financing costs, more disciplined valuations, and selective capital markets has amplified the performance dispersion between top- and bottom-quartile managers.

The contrast with public markets is striking. Active equity managers tend to hold similar portfolios, but with different company weightings, resulting in narrow performance dispersion of approximately 300 basis points. In private markets, however, portfolio composition and return drivers differ substantially across managers, exemplified in performance dispersion of over 1,400 basis points between top and bottom performing managers. In other words, the who matters more than the what in private equity.

EXHIBIT 1: The Wide Dispersion of Performance Between Top Quartile and Bottom Quartile Buyout Managers

It’s difficult to be a top-quartile performer consistently. Less than one-third of managers maintain top-quartile performance across three consecutive funds.³ The best managers create value in ways that produce repeatable outcomes across market cycles.

At KKR, value creation means measurable operational improvement using proven, repeatable playbooks tailored to the industry and region in which a company operates. Consider our 2013 acquisition of Gardner Denver, a flow control technology provider. Throughout our partnership with the company, we worked together to improve the efficiency and effectiveness of the company’s core product, executed a transformational merger with Ingersoll-Rand, and made every employee an owner. These initiatives reshaped the company into a global leader and made it more valuable at exit. Buying a good company and making it great is not an abstract idea—it’s active ownership, strong alignment with management teams, and meaningful value creation initiatives that drive consistent outperformance.

In today’s market, it’s impossible to paint private equity with a broad brush. Quality, consistency, and discipline separate the winners from the losers. So, “can private equity continue to outperform?” Yes. But with one important caveat: choosing the right manager is more important than ever.

2. Are deals getting done? 

While 2023 and 2024 were relatively slow years for private equity industry deployment, pacing recovered in 2025 with just over $900 billion deployed.⁴ But the headline number masks important nuances: deal count actually fell, so deal activity is still uneven. In this current environment, managers without differentiated sourcing capabilities and conviction are likely to continue facing challenges.

In this environment, the source of deal flow becomes an important diligence question. KKR has a truly local, relationship-driven sourcing model applied at the global level to our entire private equity platform. Over the last 50 years, we’ve executed more than 70 carveouts—complex transactions that demand deep operational expertise to separate business units from large conglomerates, restructure management teams, and build independent systems to create standalone companies. These transactions are not easily sourced or replicated; they require trusted relationships, specialized operational capabilities, and a demonstrated ability to execute with certainty.

Beyond carveouts, less than one-third of our deal flow over the last three years has come from other sponsors, meaning we don’t rely on our peers for sourcing. Instead, we create our own luck by executing take-privates and partnership transactions, in addition to traditional control buyouts and growth equity positions. In short, we have many ways to win.

Conviction matters as much as sourcing. Across the industry, we saw managers over-deploy in the highly liquid markets of 2021 and 2022 when interest rates were low and valuations were high. But today’s market is very different. Few managers have enough conviction amid the uncertainty to continue making new investments. The result: more managers are sitting on the sidelines, waiting for a clearer signal.

At KKR, we take the opposite approach. We learned during the Global Financial Crisis that timing the market is a losing game. Rather than trying to predict attractive vintage years, we aim to invest consistently across cycles, deploying capital into roughly the same number of deals every year. This disciplined deployment approach avoids over-deploying in frothy markets and preserves capital to pursue the more complex opportunities that often emerge during periods of uncertainty. For context, we deployed capital steadily through 2020 and again in 2023-24, periods when many of our peers pulled back. This consistency has historically generated some of our strongest returns.

Exhibit 2 helps reframe the current debate: the best private equity opportunities do not depend on public market movement or high visibility. Historically, private equity has generated excess returns most consistently during periods of modest or volatile public market returns.⁵ This trend suggests that disciplined managers who continue to deploy through complexity may be better positioned to capture attractive vintages than those waiting for perfect clarity.

EXHIBIT 2: Average 3-Year Annualized Excess Total Return of U.S. Private Equity Relative to S&P 500® across Public Market Return Regimes

Uncertainty creates opportunity for the right managers. Those with proprietary sourcing, disciplined pacing, and the conviction to lean in during complexity are finding attractive entry points while others keep capital parked. Historically, periods like these have produced some of the strongest private equity vintages.⁶ For advisors evaluating private managers, the clearest signal is whether deployment is being driven by differentiated sourcing and consistent discipline or market momentum.

3. Are private equity managers still able to exit investments? 

Approximately 32,000 companies worth nearly $4 trillion sit unsold in private equity portfolios globally today. Hold periods have stretched to nearly seven years versus five or six years historically.⁷ Managers are holding investments for longer, waiting to “grow into” valuations.

Managers struggling the most tend to be those who chase short-term cyclical themes and rely on market beta rather than operational improvement. That said, exits are happening: 2025 was the second-best year ever by dollar value. However, this was dominated by a handful of megadeals worth over $10 billion. The total number of exits actually declined year-over-year. Markets have become extremely selective, with only the highest-quality deals trading, a trend we expect to continue potentially through 2026. 

EXHIBIT 3: U.S. Private Equity Exits

The buyout math has also gotten harder. A decade ago, approximately 5% annual earnings growth over five years could support a 2.5x return. Today, with higher financing costs, lower debt levels, and less multiple expansion, managers may need closer to 12% growth to achieve the same outcome. This makes a manager’s ability to meaningfully enhance earnings through operational improvement – what we call “asset alpha” – the single most important driver of performance and a far more resilient performance driver than “market beta”.

In today’s picky market, “asset alpha” separates the managers who can monetize consistently from those who can’t. Across market cycles and macro environments, there is always demand for quality businesses. At KKR, when we’ve achieved roughly 80% of our value creation plan for a portfolio company, we look to monetize.

It also helps to have multiple pathways to exit. While IPO markets have recovered well so far in 2026, they were not reliable over the past few years. Managers who select investments with several monetization options and build value that attracts buyers enjoy more flexibility regardless of market conditions. Historically at KKR, our exits have been roughly evenly split across strategic sales to corporate buyers, sponsor sales, and public markets, giving us options in any environment.

The Bottom Line: Success Depends on a Safe Pair of Hands

In a market increasingly defined by operational improvement over market momentum, managers with scale, differentiated sourcing, and proven value creation toolkits are best positioned for long-term success. Investors see this too: while buyout fundraising fell over 15% in 2025, KKR closed the largest North American buyout fund in history at $23 billion—a resounding vote of confidence in our approach. For advisors and investors seeking to allocate through the noise, the signal is clear: discipline, consistency, and demonstrated results matter more than ever.