Private equity firms are preparing for a significant portfolio clean-up in 2026, after a year of progress in divesting old investments.
According to a report, private equity firms have been struggling with a surplus of unsold companies for several years. This has resulted in investor dissatisfaction and difficulties in raising new funds.
The number of companies in private equity portfolios increased from the previous year, reaching approximately 12,900 U.S. companies as of September 30, 2025.
The average hold period, the time between purchase and sale, is almost seven years. This is down from the 2023 peak, but still higher than pre-pandemic levels. After a period of aggressive buying, higher interest rates in 2022 made debt-financed buyouts more expensive, effectively halting the buying frenzy.
Companies are now reluctant to accept lower returns on companies bought at high valuations during the boom. reports The Wall Street Journal.
Also read: How to start investing in private equity
According to PricewaterhouseCoopers, U.S. private equity firms had approximately $880 billion in undeployed capital as of September. This is down from a record $1.3 trillion in December 2024.
However, due to a rebound in the deal market, the total value of global private equity sales or IPOs increased by more than 40% by 2025.
Executives expect more forgiveness of older investments in 2026. A sharp increase in the number of IPOs offers an exit strategy for private equity firms. High-profile private companies, including SpaceX and artificial intelligence startup Anthropic, are considering a stock market listing.
The expected clear out in 2026 is an important development for private equity companies. Corporate backlog has long been a problem, causing investor frustration and hindering the ability to attract new funds. The expected increase in investment divestitures, combined with the boom in IPOs, could provide a much-needed exit strategy for these companies.
Well-known companies considering a listing could further drive this trend, potentially leading to a more dynamic and fluid private equity market in 2026.
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