Special Feature: Rewarding patient capital

Co-investments and the secondaries market are driving a fresh wave of private equity deals, with super funds emerging as major players, but in a tougher, slower season for the asset class, endurance is key. 

Investors looking at private equity for the first time this year may barely recognise the market that existed several years ago. Gone are the days of easy money, predictable exits and record fundraising. In their place is a more discerning environment, one that is driving fund managers to rethink where they allocate capital, how they create value and which sectors deserve their attention.

The change comes after a tough period for the asset class. Higher borrowing costs, longer fundraising cycles and weaker deal activity have challenged many of the assumptions that drove private equity's success during the low-interest-rate era. At the same time, rapid advances in artificial intelligence have reshaped investment priorities, prompting investors to reassess both the risks and opportunities across sectors.

As capital increasingly flowed towards AI-resilient businesses, a new private equity landscape began to take shape.

The shift is reflected in the numbers. According to the Reserve Bank of Australia's March 2026 Financial Stability Review, global private equity assets under management reached US$10.9 trillion in September 2025, underscoring the sector's continued scale despite fundraising remaining below its 2021 peak. Buyout funds are also holding assets for longer, with the average holding period stretching to seven years in 2025 from five years in 2010.

Fundraising outlook 

Bain & Company's Global Private Equity Report 2026 reported that although private capital raised $US1.3 trillion last year, in line with 2024 values, buyout activity fell 16% to $US395 billion.

Singapore-based Neuberger private equity managing director Gabriel Ng says it has been a tough fundraising market.

"The amount of capital that's been raised for private equity has been on somewhat of a steady downward trend since the peak levels of 2021. I think the broader observation is that managers are taking a lot longer with the whole fundraising journey to raise their target fund sizes," he says.

"Over the past few years, the average time in market for a fund has really been about two years. It's a pretty drawn-out fundraising process, versus anywhere from 14 to 15 months pre-2021."

General partners (GPs) are in charge of private equity funds, raising capital and deciding which assets to invest in, while limited partners (LPs) invest in those funds and have little control. In this tight market, larger GPs tend to have more power and are garnering a larger amount of capital, whereas smaller lesser-known fund managers are struggling.

LPs are also stretched with allocations and are constrained by the amount they can get back from previous investments. More than half, or 53% of LPs surveyed by Private Equity International, said they were very or somewhat limited by their existing undrawn commitments to private equity from making new commitments in 2025, compared to 38% in 2024.

But overall, deal activity is starting to pick up after a slump in 2022 and 2023 following the peak levels of 2021.

"In 2024 and 2025, we've seen a steady step up in deal momentum and deal volume. I think it's a function of the convergence between buyers and sellers, and a narrowing of the bid-ask spread," Ng says.

There was a slight pull back in activity in the first half of 2025 on the back of US tariffs but overall, 2025 ended well, driven by a pick-up in the second half. The Middle East conflict then put a dampener on activity at the start of  
this year.

Senior portfolio manager and head of private equity James Lilico oversees $22 billion in private equity for the Australian Retirement Trust (ART). He says it has been a challenging few years for traditional private equity, especially compared to listed markets.

"The broader private equity industry has struggled to keep up with what's happening in listed markets, and honestly that could carry on for a couple more years," he says.

Given this outlook, ART has pulled back its forward commitment assumptions for private equity for the next few years by 15 to 20%.

Exit activity 

The value of global buyout-backed exit value increased by 47% in 2025 to $US717 billion, but the number of exit transactions slowed by 2% to 1570, according to Bain & Company's Global Private Equity Report 2026.

Exit value was inflated by a number of large transactions, including the $US40 billion sale by Macquarie of Aligned Data Centres to BlackRock and a consortium of tech giants. Another seven exits valued in excess of $US10 billion each also added $US155 billion, or 22% of the total value.

"In terms of exits - if you look at distributions as a percentage of private equity NAV, it's been below the long-term average for the last three years or so. And therein lies the need for liquidity solutions," Ng says.

The secondaries market is one way for LPs to create liquidity, and it continued to grow in 2025 with the transaction value of GP and LP-led vehicles increasing by 41% over 2024, Bain & Company analysis found.

Secondaries market volume also grew to exceed $US200 billion in 2025, a meaningful jump from the secondaries market volume of $US75-80 billion back in 2018.

Part of that is LP secondaries, but GP led transactions have also been driving secondaries market activity with a tenfold increase in activity over the last decade to over $US100 billion in 2025.

Head of investment directors, public and private markets at Schroders, Claire Smith, has also observed the secondaries market become an increasingly important release valve.

"What began as a cyclical response to weaker exits is evolving into a structural feature of the private equity ecosystem. Record secondaries volumes in 2025, spanning both LP-led and GP-led transactions, demonstrate that investors are increasingly using secondaries and continuation vehicles to generate liquidity, recycle capital and extend ownership of high-quality assets without relying solely on traditional exit markets," she said.

Continuation vehicles, also known as continuation investments, which allow the GP to maintain control of the asset and return capital to the LP, are also growing in popularity. Schroders Capital is forecasting a more than fourfold expansion in continuation investments over the next decade, growing from roughly US$70 billion in 2024 to more than US$300 billion by 2034.

Although they account for less than 10% of total PE exit value, continuation vehicles grew by 62% in 2025 and have been growing 37% annually since 2022, according to Bain & Co.

Co-investment opportunities 

The softness in deal activity over the past few years prompted some market participants to pull back, which has seen fund managers offer more co-investment opportunities to investors. Co-investing is when a larger investor, like a superannuation fund, is asked to invest in a private equity asset alongside a GP instead of via a private equity fund.

For investors like Neuberger, which oversees $US40 billion in commitments under management worldwide, that has created opportunities for larger allocations.

"As a result, we've seen our co-investment deal flow move in the opposite direction to the broader market, and seeing more investment opportunities ultimately allows us to be more selective," Ng says.

JANA Investment Advisers head of private equity Matthew Moon agrees this expansion in the co-investment opportunity set should benefit co-investors.

"Not all co-investments are equal, however, and selectivity on both asset quality and GP quality is essential. Done well, co-investment represents a genuine source of alpha - through reduced fees, tighter alignment, and better visibility into the underlying assets," he says.

CI Global Asset Management head of fixed income and lead - private markets, Geof Marshall says that to access co-investments, investors need to be part of multiple big ecosystems and networks. They also need to be able to invest large sums and turn around their investment decisions quickly. All deals in private equity require scale, experience and resources but co-investments have a strong focus on strategic relationships.

"I am showing my age, but in a relationship-driven market, this puts you at the front of the Rolodex. In the past, co-investment stakes were offered to large LPs when sponsors lacked the capacity to underwrite an entire deal," Marshall says.

But over the last two decades large superannuation funds and sovereign wealth funds have matured and now have the resources to participate in co-investments.

Australian Retirement Trust is such an institutional investor. It has also been looking at innovating its deal structures. It is focussing on harvesting more from its existing private equity managers in terms of setting up bespoke structures with them which can enable easier access to deals.

"We try to be a bit more innovative in how we think about the ways we can make life easier for us to generate the co-investment with our managers," Lilico says.

"Sometimes we have vehicles ready to go, so that we don't have to start the legal process every time or the operational process every time... We want to be obviously working alongside them, but at least we can take some of the friction out of the process by having the legals and all that done up front, so it becomes more an investment decision," he says.

Marshall also notes a significant shift in co-investment activity east and north to the large sovereign wealth funds in the Middle East and pensions in Canada.

Sector specific 

As the trillion-dollar IPO of SpaceX highlighted, technology and especially artificial intelligence continue to attract strong investor interest, at the expense of many other sectors.

Early private equity investors in Space X potentially made billions from these investments via the float. Fidelity Investments, for example, is understood to have started investing back in 2015 when it was valued at just $US10 billion.

As at end of March, 4.7% of its $US177 billion Fidelity Contrafund, or $US8.319 billion, was invested in SpaceX. If Fidelity had invested just $US1 million back in 2015, that would have grown to $US189 million at the float, according to Value Add VC.

Interest in AI is underpinned by these astronomical figures but at the same time there is a scramble among investors and those putting together deals to find assets that are AI-proof.

"We just don't know how much longer this boom related to the AI thematic is going to carry on for. It's something that we have to be cognisant of, and if you don't have a lot of your portfolio leaning into that theme, it's going to be hard for traditional PE in some cases," ART's Lilico says.

Software as a service, which had attracted a significant percentage of private equity capital prior to the AI boom, is also out of favour. There is understandable concern regarding the potential AI impact on future software valuations.

Investors are looking for those sectors they predict won't be disrupted by AI with interest in industrials, national defence and aerospace increasing also on the back of geopolitical unrest.

There is an increased focus on HALO, or heavy asset, low obsolescence, where investors perceive there will be less risk from AI. Specialist areas of healthcare, such as dentistry, are also being cited as AI-resilient.

JANA's Moon says the primary emphasis should be on selectivity.

"The favourable conditions that historically underpinned private equity returns, namely low interest rates, abundant leverage, and multiple expansion, have largely dissipated. In the current, more challenging environment, managers must increasingly rely on differentiated sourcing and operational value creation to drive strong performance," he says.

But he is optimistic that following a period of subdued IPO activity, GlobalX and the two highly anticipated potential listings of OpenAI and Anthropic could provide a much-needed boost to the IPO markets.

Unsurprisingly many prospective issuers are monitoring the outcomes of these transactions, hopeful that successful listings could pave the way for their own IPO processes.

"However, given the substantial backlog of private companies awaiting listing, even as IPO markets begin to reopen, we expect the normalisation process to be gradual," he said.

Neuberger has always been sector agnostic and focuses on underwriting every investment on a bottoms-up basis, but has its eyes on robust activity in healthcare, technology and particularly the enablers of the AI build out.

"Also, sectors such as non-discretionary consumer, education, industrials, advanced manufacturing, defence, and aerospace are other thematics we are investing behind," Ng said.

Educating the retail world  

Private equity has always been a hard asset class for retail investors to access due to the size of the deals. There are some fund-of-fund opportunities for wholesale and retail investors in Australia, such as the Evidentia Global Private Markets Fund, the Drummond Private Markets Portfolio and the newly launched FinCap Private Markets Platform.

"The feedback that I've heard is that none of them are raising significant funds in market. FinCap is new so it's still early days on that one but my understanding, just through the BDM networks, is that none of those products are raising a lot of money," Evergreen Consultants founder Angela Ashton says.

This is surprising given such structures should be a way for advisers to get a pre-selected mix of private equity and private markets investments. It may suggest that advisers would prefer to choose specific investments themselves so that they're not sitting in managed accounts.

"I'm not hearing discussion of private equity anywhere near as often as private credit, and that could be for a variety of reasons, but it may be just the way that it's offered to advisers. It may not be quite as easy for them to allocate to on an ongoing basis," Ashston says.

"For advisers that are sophisticated enough to use a lot of private market type product, there is also an understanding that private equity has had some issues, and so it may be there's a little bit of a wait-and-see attitude as well," she said.

But FinCap founder Christian Ryan is optimistic the listing of the big techs is prompting investors that haven't considered the asset class before, to start looking at it.

"I think people forget that all listed companies used to be private at some point, that's how they start their life. And people realise that this is not a case for or against or investing in listed versus private. It's just there are so many more opportunities in private and access to it is getting better," Ryan says.

For wholesale investors, the growth in the secondary market also provides access to opportunities they may not have been able to access previously.

"The good thing about the secondary market is it gives an opportunity to be a bit more selective in what you're buying and hopefully buy in it at a discount," Ryan says.

Ashton acknowledges the vast universe of private market opportunities but also points to the lack of transparency.

"When you have products that are in the listed markets, like Australian equity funds, the level of transparency is just so much higher. Also, the ability for an adviser to see 10, 20 or 30 Australian equity managers, and really understand the asset class, because they're getting so many different views, some of which are contradictory [is just not there in private equity]," she says.

Ryan suggests more can be done to explain how private equity works, particularly its liquidity profile.

"I think it's an issue because people haven't understood the structural considerations of the vehicles that they're investing in. When you say monthly or quarterly liquidity [do they know] what that actually means? And do they understand that with the gating and so forth, it's actually an appropriate mechanism to protect all the investors."

Although institutional and retail investors alike need to be vigilant in the current environment, global private equity is still a stable and steadily growing $US10.9 trillion industry. Specialist fund managers that have the relationships, experience and knowledge are best placed to identify opportunities that can provide superior returns for investors.

This special feature was first published in the July 13, 2026 (Vol. 24 No. 13) edition of Financial Standard. Brought to you by Neuberger.