Navigating private markets in 2026: Q&A with StepStone and Fidelity

Ian Johnson: What are the key themes shaping global private equity markets today? What is your outlook for 2026?

Michael Elio: StepStone believes there are several key themes shaping global private equity markets today.

• Continued resilience amid macroeconomic volatility
  Private equity has shown a consistent ability to withstand market volatility. Across major crises—from the dot-com downturn to Covid-19—price-to-earnings (PE) ratio has historically captured approximately 55% of public market drawdowns while exceeding 100% of public market recoveries. This underscores its long-term resilience and ability to compound value despite volatility.
• Slower exits but not a market breakdown
  Exit activity has slowed since 2022 due to higher rates, inflation, and buyers’ caution. However, exits continue to occur, with quality assets still finding buyers. While the tariff situation in 2025 created a pause in mergers and acquisitions activity, the rebound became more significant in the second half of 2025. General partner (GP)-led secondaries have also expanded, becoming a more meaningful liquidity channel.
• Despite concerns that private equity valuations may be inflated, evidence suggests otherwise
  Private assets usually trade below public peers due to size and liquidity differences. Assets continue to exit at premiums to their valuations a year earlier, validating prior marks rather than revealing overvaluation.
• Value creation is driven by growth and operational execution, according to return data across more than 13,000 buyout deals
  Revenue growth and margin expansion generate 3.3 times more value than multiple expansion. PE-backed companies have delivered about 7% higher annual revenue growth than public peers, demonstrating the impact of active ownership.¹
• General partner-led transactions are gaining momentum
  GP-led secondaries have become a structural feature of the market. Volumes rose from $71 billion in 2024 to $105 billion in 2025. Demand focuses on blue-chip assets with strong growth and stable cashflow. This reflects a broadening of liquidity options across vintage years.

2026 presents a constructive opportunity set for disciplined investors, favoring those with strong GP relationships, steady pacing strategies, and a focus on fundamental value creation. Improving exit markets will enhance liquidity and valuation discipline will continue to support portfolio credibility. In our view, operational excellence will differentiate top performers in an environment of moderate growth and higher financing costs. In addition, secondary and GP‑led activity will remain elevated, creating both liquidity and opportunity.

Ian Johnson: What is your perspective on current valuations? Within private equity markets, where might valuations be rich? Attractive?

Michael Elio: StepStone’s analysis finds no systemic overvaluation across private equity markets. Despite headlines questioning valuation integrity, the data shows:

• Private assets are marked at levels below public markets, consistent with structural differences in liquidity and company size.
• Exits continue to occur at premiums to prior marks, meaning realizations are validating reported valuations—not contradicting them.
• Alignment between active and exited valuations strengthened in 2024–25, indicating that marking discipline is intact even after a volatile macro period.

StepStone identifies several areas where valuations look compelling:

• Companies with strong earnings growth and low reliance on multiple expansion: These businesses are valued more based on fundamental performance, not market sentiment—making them comparatively attractive.
• Smaller and mid‑market companies: Private equity generally prices smaller companies at lower multiples than public peers, due to size and liquidity discounts. These persistent discounts make the lower middle market structurally more attractive on a valuation basis.
• Strategies where operational value creation dominates: Across the more than 13,000 buyout deals analyzed; revenue and margin expansion generated 3.3 times more value than multiple expansion.

Ian Johnson: Given the multi-year dearth in private equity distributions, what are your private equity distribution expectations over the next year? How are extended hold periods and the increased GP use of continuation vehicles influencing LP pacing strategies?

Michael Elio: Private equity distributions have remained significantly depressed in recent years as mature portfolios historically distributed about 20%–25% of net asset value (NAV) per year. Still, in recent years, distributions fell to just 10%–15% of NAV, levels not seen since the global financial crisis. As outlined in Exhibit 1, global PE distributions were 12% of NAV through 2025, and buyout-only distributions were 13%. Despite positive momentum, distributions as a % of NAV remain meaningfully below the long-term average of 21%.

Exhibit 1: Private equity distributions since 2000 (2000-2025)

This slowdown is directly tied to a sharp decline in exit activity across 2022–2024. However, the same analysis provides evidence that exit activity is beginning to recover, supporting higher distribution expectations over the next 12–18 months. StepStone’s forward‑looking dataset identified 100+ portfolio companies where GPs have begun exit discussions. Eighty percent of these companies exhibit strong earnings growth and limited reliance on multiple expansion, making them credible near‑term exit candidates. In addition, StepStone expects a gradual improvement in distributions over the next year, supported by healthier exit pipelines and the sustained increase of GP‑led secondary transactions.

Ian Johnson: How has the secondary market evolved in recent years? What do you see as the biggest opportunities and challenges in this space? Do you expect secondary transactions to drive greater liquidity in 2026?

Michael Elio: The secondary market—particularly GP‑led transactions—has expanded rapidly and become a central part of the private‑equity liquidity ecosystem. GP‑led transaction volume increased from $32 billion in 2020 to $106 billion in 2025, almost tripling in five years. Secondary activity has helped drive distributions to paid-in capital (DPI), particularly during years when traditional exits (IPOs, corporate sales) slowed.

Secondary markets are expected to take on an even more important role in providing liquidity in 2026. GP‑led secondaries reached record levels in 2025, and the demand for these structures is structural rather than cyclical. StepStone’s forward‑looking analysis indicates that 80% of near‑term exit candidates have strong earnings growth and limited dependence on multiple expansion—making them well‑suited for GP‑led or traditional secondary processes. Sponsor‑to‑sponsor activity also strengthened in 2025, reflecting renewed buyer appetite and supporting overall market liquidity.