Private equity firms have sharply reduced asset sales in early 2026, as a combination of artificial intelligence-driven volatility and escalating geopolitical risks – particularly conflict involving Iran – adds fresh strain to an already fragile exit environment, according to a report by Bloomberg.
Data indicates that buyout groups completed disposals worth roughly $103bn in the first quarter, representing a decline of around 36% compared with the same period last year. While still above long-term averages, the drop contrasts with a broader M&A landscape that has remained supported by large-scale transactions.
The slowdown presents a challenge for sponsors looking to offload ageing portfolio companies, distribute capital to investors and restart fundraising cycles. Elevated entry valuations from the pandemic-era deal boom continue to complicate exits, leaving many firms reluctant to sell at discounted prices and limiting their ability to recycle capital into new opportunities.
Market participants note that the early months of the year are typically critical for building deal pipelines, but activity between financial sponsors has been noticeably subdued.
In response, firms are adopting alternative strategies to generate liquidity while holding onto assets that are difficult to exit. These include minority stake sales and the use of continuation vehicles, which allow investors to partially realise value without a full sale.
At the same time, leverage levels remain under scrutiny. Research from Moody’s Ratings highlighted that private equity-backed companies in the US raised approximately $94bn in borrowing last year to fund dividend payouts – an approach that can heighten financial risk at the portfolio level.
The challenges facing the sector stem in part from the end of the ultra-low interest rate environment that followed the pandemic. Higher financing costs have widened valuation gaps and reduced buyer appetite, while more cautious lending conditions have further constrained dealmaking.
Recent macro shocks have compounded these issues. Rising tensions in the Middle East have reignited inflation concerns, raising uncertainty over the trajectory of interest rates just as markets had begun to anticipate cuts. Meanwhile, a technology stock sell-off linked to AI-related disruption has spilled over into private markets, where many firms hold significant exposure to software businesses.
This has led to delays in several high-profile exits, including attempted sales of software companies backed by EQT and TA Associates, underscoring the sector’s sensitivity to shifts in sentiment around technology valuations.
Public market exits have also proven difficult. Heightened volatility has limited IPO activity, prompting firms such as Blackstone and others to postpone or scale back listing plans for portfolio companies. In some cases, post-IPO performance has been weak, further reducing incentives to pursue public offerings or secondary share sales.
Despite these headwinds, pockets of resilience remain. Sectors tied to defence spending and industrial activity have continued to attract investor interest, benefiting from increased government expenditure and their perceived defensive characteristics. Stronger-performing assets in these areas have provided selective exit opportunities.
Industry participants emphasise that the decline in exits reflects not only weaker market conditions but also greater selectivity among private equity firms. Many sponsors are choosing to delay sales rather than accept lower valuations, particularly in anticipation of improved conditions.
However, financing constraints are likely to remain a limiting factor. Banks are tightening underwriting standards and becoming more selective in supporting leveraged buyouts, wary of repeating losses incurred in previous periods of market dislocation. This is expected to weigh on buyers’ ability to fund large acquisitions, including those involving sponsor-owned assets.
Overall, the private equity exit landscape is becoming increasingly polarised, with high-quality assets in resilient sectors continuing to transact, while more challenged businesses face extended holding periods amid ongoing market uncertainty.
