FEATURE: Private equity | Time to deploy

Private markets have experienced significant growth in recent years, and investors are showing no signs of slowing down.

Global private equity (PE) investment rose from US$1.8 trillion in 2024 to US$2.1 trillion in 2025, despite a decline in deal volume from 20,836 to 19,093, according to fresh research by KPMG.

The Americas accounted for more than half of this, with US$1.2 trillion deployed across 9118 deals, but attention is very much turning to Europe and Asia as competition heats up.

"In terms of deal value, 2025 was a very strong year for the PE market globally. We saw PE investors backed by record levels of dry powder more than willing to make large deals focused on assets at the top end of the market," KPMG International global head of private equity Gavin Geminder says.

"But deal value is only one half of the picture. Global deal volume was less exciting - falling to a level well below what we've seen historically. As for 2026, we expect both deal value and deal volumes to exceed 2025 with deal volumes starting to return to historical norms as we move through the rest of the year."

Emerging markets attracted a robust US$729.9 billion, a notable increase from US$649.4 billion in 2024.

As for APAC, PE investment edged upwards, rising from US$142.2 billion to US$144.9 billion.

According to KPMG, the sectors that saw the most PE investment globally in 2025 were technology, media and telecommunications, industrial manufacturing, and energy and natural resources.

"While the uptick in investment was positive, ongoing global geopolitical uncertainties and a large inventory of aging assets in need of exit kept many PE investors highly selective over the course of the year," Geminder says.

Beware of a bust

Apostle Funds Management head of portfolio management Joe Unwin says the great deal of capital sitting in PE investors' pockets as we speak could be cause for concern.

"Both the private credit and private equity markets have grown. Private equity is a lot more mature than private credit, or at least the growth happened earlier," Unwin says.

"But the main issue at hand is, as some of these really big managers have grown and continue to grow, they need to find somewhere to put all the money in the private equity market."

He says that currently in the US there is around US$1.4 trillion of dry powder in private equity funds, which basically just means cash that needs to be deployed.

"So, private equity managers are effectively going to invest US$1.4 trillion at some point, presumably in the next few years, and the odds of them being able to do that while still being really selective about where they're investing is unlikely, because ultimately, the market's just not that big," Unwin says.

As he points out, having vast amounts of money that needs to be deployed means some PE firms could start investing in companies purely for the sake of allocating the dry powder. Looking at how things have played out in the private credit sector, it should also act as a warning.

"It's been a similar thing in private credit, where the market's growing to almost US$2 trillion in size, but there probably wasn't US$2 trillion worth of good credit to lend to," he explains.

"Ultimately, managers' main KPI is growth in funds under management (FUM), not in performance. So, they're not necessarily incentivised to be selective about their investments, but more so to invest more money. It's a similar dynamic in private equity."

Unwin says it has been slightly harder for PE managers to deploy capital, which is why there is trillions of dollars simply waiting to be allocated, but that doesn't mean they're not deploying capital; the companies that are having problems in credit will also have PE investments, and those PE investors will be the last ones to get their money out at the end of the day.

"As there's more of these potential issues emerging in credit, there's a chance that there's companies that are maybe more leveraged, for example, which means a larger portion of their capital structure is not attributed to the equity investors. So, effectively, even though the risk is always there for an equity investor that you may not get your money back, the risk becomes larger if the companies have more leverage," he says.

"Effectively, it means you're just a smaller part of the pie. That risk is always there, but it's probably elevated if there's all this credit money deployed into the market."

Unwin says it's unlikely the great pile of cash will be deployed this year as firms need to set "realistic expectations".

Being selective

For Australian Retirement Trust (ART) general manager, growth assets Elizabeth Kumaru, realistic expectations and ensuring the best possible outcomes for members must be the driving force before executing a PE investment.

According to Rainmaker Information, ART has one of the largest PE portfolios out of all Australian super funds.

As at December 2025, ART had around $23.5 billion invested in PE, representing around 6% of the total portfolio at an aggregate level. For the high growth option, PE takes up around 8% of holdings, which Kamaru says is "quite a bit higher than our peers".

But there are a few reasons the fund is feeling positive about the opportunities the PE market can provide members.

"ART is a big advocate of unlisted assets. More generally, we have a very large unlisted portfolio, but there's really three main reasons as to why we believe in unlisted assets and specifically private equity," she says.

"First, it's really capturing the diversification that comes from the illiquidity premium. Because unlisted assets can't be sold instantly on the share market, investors need to be compensated for that illiquidity. So, you typically would expect a higher return over time, purely because as an investor you need to be compensated for that inability to get your cash back today or tomorrow."

Kumaru says ART is incredibly well-positioned to take advantage of that, enabling it to invest in less liquid assets while still being able to manage its overall liquidity requirements.

"The second reason is around value creation through active management. We obviously try to choose some of the best global practice managers we can identify, and they work directly with the companies and the assets to make improvements," Kumaru says.

"And importantly, not only do they own in aggregate, in most instances they own the company completely. This enables them to really parachute in and institute value creation opportunities and extract the best value from those companies."

Kumaru says this approach allows for a longer-term horizon, which for a super fund is often ideal.

"In listed companies, often they'll focus really on the short-term earnings rather than long-term value, and that's because of things like the media scrutiny and quarterly reporting requirements," she says.

"In the unlisted space, you can actually make hard decisions, which might hurt short-term performance, but it really does deliver value over the holding period, and you've got the ownership structures to make it happen."

The other reason ART feels optimistic about the PE space is because of the broader opportunity set it can provide; public markets offer thousands of companies, but private markets offer tens of thousands.

"Small-to-medium enterprises are a huge driver of aggregate GDP. So, if we want to capture exposure to those returns on behalf of members and want to get global growth - which is why you have growth exposures in your portfolio - you really need to access private markets," Kumaru says.

"ART is very, very well positioned, because of our size, scale and growth, to actually access that and still have sufficient liquidity to service all the needs of our members. So that's the real reason why we're big believers."

For Alan Coffey, Baillie Gifford director, private companies - growth equity, the width and breadth of the private equity market is also the drawing point.

He says, in terms of private growth equity, there is a lot to be excited about, underpinned by the structural trend of companies staying private for longer.

"If you think back to the 1990s, the average time for company from foundation to IPO was about five years. In the last 10 years or so, that kind of crept up to closer to 10 years. And the average stats at the moment are more like 14 to 15 years. So that's a big fundamental structural change in the market," Coffey says.

"For us as a private growth investor, it's incredibly attractive."

Coffey says the other fascinating element is that some of the (arguably) most exciting businesses in the world right now are staying private for longer - think SpaceX, Anthropic, and OpenAI.

"The conversation has shifted from, 'Should I invest in this space?' to, 'Why wouldn't I?' It just seems so obvious that if you want to capture exposure to some of these incredible, transformational companies - which are growing incredibly large at this point in time and generating incredible returns for their private investors - is non-negotiable," Coffey says.

As Coffey points out, if you are selective about which businesses to figuratively get into bed with, there are fantastic profits to be made.

But for Baillie Gifford, the selection criteria is tough. Businesses must have at least $50 million of revenue, at least $500 million of market cap, growing at least 35% top line every year, and then either already profitable or have a clear path to profitability,

"We're looking to find incredible businesses with great business models and great founders that can bring that business from a great business to an exceptional business," he says.

Each year, there are about 1000 companies that have potential scope for manager. This is whittled down with screenings, analysis and meetings with the companies. Only then, if it likes a company, will it consider undertaking due diligence. All in all, Baillie Gifford executes about 10 and 15 investments each year.

"One of the things to do in this business is to be incredibly selective and to some extent, narrow that funnel. Because one of the worst things you can do is go chasing the market and trying to see every single business that could be in scope. We're really strict around our criteria, or you could spend a lot of time focusing on stuff which is ultimately not investable."

Calculating value and collecting the bounty

The lesson seems clear, and not unlike the unwritten rules for any investment: doing your research is key.

Some PE strategies have been so successful even the teams responsible have been questioned by their own company - or at least that was the case for Schroders - Claire Smith head of investment directors, public and private markets says.

Schroders has been in the PE game for a long time globally, having jumped on the venture capital train back in 1997, so it knows the benefits of private markets well. But the Schroders Specialist Private Equity Fund performed so well in 2022 the global head of private markets had to present to the board twice throughout that year on the performance of the fund to prove it had gone through all the right checks and balances.

"I think they almost didn't believe us. Our colleagues were asking us, 'How did your fund perform so well, and the market's done so poorly?'," she recalls.

In the calendar year to December 2021 the fund returned 23% and in the year to December 2022 it returned 12.1%. Meanwhile the ASX 200 closed out 2022 down more than 5%.

Smith says the valuation technique is "extremely robust", especially given the regulatory requirements that have existed for some time in Europe.

"When we launched our evergreen fund, we switched the frequency of our valuations from quarterly to monthly and we added a few more checks and balances within the firm," Smith says.

It is because of these instances of outperformance that the PE space has been such a drawcard for investors.

HarbourVest Partners managing director Dominic Goh recently visited Australia due to rising investor demand - especially in the secondaries market.

"We are seeing an increasing interest in PE secondaries in Australia, particularly with high-net-worth investors and family offices, many of whom are first-time investors to alternatives and private equity," Goh says.

"They are drawn to secondaries because of its quicker deployment and shorter holding periods, the lack of a j-curve, and the opportunity to gain exposure to quality assets often times at a discount to their last reported valuation."

Goh says while there has been an uptick in demand in Australia, this is simply following the global trend of investors being attracted to secondaries assets because of the asset class' ability to generate compelling risk-adjusted returns.

This is also driven in part by a consistent under capitalisation of the secondary market.

"Capital raised for the strategy has struggled to keep up with the growing opportunity set," Goh says.

"Investors therefore benefit from the supply-demand imbalance and secondaries funds can be highly selective in the deals they decide to pursue. These dynamics have accelerated the adoption of secondaries, and the strategy has today become a core part of investor asset allocations."

Goh says he feels optimistic about how the market looks to be shaping up over the next few years, especially as interest shows no signs of slowing down.

HarbourVest sees the market continuing to grow rapidly, with annual transaction volumes expected to exceed US$300 billion in the coming years. It's expected to come from an increase in the number of sellers and the average size of transactions consummated, driven by increasing comfort with accessing the secondary market.

"As deal sizes increase, using data and quantitative tools will be crucial for due diligence.  By systematically analysing cash flow patterns, valuation dispersion, manager performance, and market dynamics at scale, data driven secondary managers gain an edge in pricing discipline, asset selection, and the ability to deploy capital more consistently across market cycles," he says.

"We also expect evergreen capital to play a larger role in the secondary market as investors, especially those in the high-net-worth space, increasingly seek flexible, long-duration vehicles that are easy to access with reduced administrative burdens."

Smith agrees about the growth in demand, saying Schroders has been having more conversations with financial advisers who are interested in allocating to PE.

"The quality of the conversations we're having has changed significantly. When we first launched our evergreen fund there were only really two other funds in the market at that stage, and the initial meetings were more, 'What is private equity?' and 'How does it work?'," Smith says.

Now, the knowledge of the market is far beyond where it was six years ago, largely because there's a lot more fund managers and clients talking about it.

"It's now becoming not just, 'Should I have private in my portfolio?' Instead, advisers and consultants are thinking, 'Should I have secondaries? Should I have primaries? Should I have co-investments? What style of private equity should I have in my portfolio? Should I have large caps, small- to mid-caps or venture capital?'"