2026 Mid-Year Outlook

At the turn of the year, we framed our 2026 outlook around "Investing at High Altitude": market levels were elevated, volatility was a real risk, but disciplined investors should still remain open to the possibility that higher highs lay ahead. Midway through the year, that framing has held up well.

The first half delivered the volatility we anticipated. At its peak, the U.S.-Iran conflict signaled a meaningful drag on growth alongside a renewed inflationary impulse. The mid-June U.S.-Iran Memorandum of Understanding, which established a temporary 60-day ceasefire framework, helped ease those immediate headwinds. Recent tensions, however, underscore that the agreement was always intended as an interim arrangement rather than a durable resolution. In our view, it deferred rather than eliminated geopolitical risk, leaving the path back to volatility shorter than the one that brought us here. While a swift restoration of the pre-war status quo remains unlikely, we continue to expect some semblance of a reopening in the months ahead.

Even if the path forward brings bouts of volatility, the events of the first half of 2026 have not altered our five-year view. Our base case remains in place and, if anything, our conviction in the longer-term opportunity has strengthened. Indeed, we are raising the probability of our "Productivity Boom" scenario, driven by resilient and broadening AI adoption that is increasingly translating into measurable productivity gains. In our view, this marks the beginning of a Transformation Era for private markets – a period in which the underlying drivers of value creation shift to AI-enabled productivity and structural change.

The first half saw a notable slowdown in platform buyouts as sponsors paused amid Middle East volatility, although add-on activity held up and operators continued to scale existing platforms. With the macro drag now easing, we expect H2 activity to broaden meaningfully across transaction types and sizes.

Several indicators are already constructive. Global M&A volumes rose +33% year on year in Q1⁸, and global IPO volumes were up 52%⁹, supported by strong corporate activity. Exit pathways have not been deterred – what was missing was conviction on the macro path. With that returning, sponsor-backed M&A and exits should follow.

Valuations also favor private markets. U.S. median buyout EV/EBITDA multiples remain around 12x¹⁰ – below the 14.3x peak of 2021 – and the spread between private equity and listed large-cap multiples has widened to roughly 3.5 turns¹¹, the largest discount in 15 years. For investors with operational capabilities, this is a strategic opening rather than a warning sign.

We see further scope for selectivity to manifest in two areas: future-proof Heavy Asset, Low Obsolescence (HALO)¹² investments, which combine physical durability with limited exposure to AI-driven software disruption; and AI-enabled add-ons, which embed productivity gains into existing portfolio companies. In practical terms, this remains an environment that rewards discipline over speed – resilient business models, cash-flow durability, operational upside, and selective deployment.

As we laid out in our Q2 Private Markets Chartbook, our five-year outlook is increasingly shaped by what we describe as a Transformation Era: a period in which AI-driven productivity gains and structural change reshape the drivers of value creation across private markets. Therefore, we are raising the probability of our “Productivity Boom” scenario from 15% to 20%, resulting in a 70% combined probability that the economy operates in a constructive growth environment with productivity at or above trend. This reflects increasingly tangible evidence that AI adoption is accelerating and delivering measurable returns on investment (ROI), strengthening our confidence that productivity gains will continue to build.

The productivity story is gaining empirical traction. In the U.S., industries with high AI exposure accounted for an estimated 1.7 percentage points of the 2.4 of output-per-employee growth recorded last year¹³. More importantly, the long-term upside is becoming more visible. As AI moves beyond chatbots to agent-driven workflows, the scope for productivity gains will expand.

In the U.S. alone, AI could add up to USD 20 trillion in cumulative output by 2035¹⁴. Annual productivity growth could double relative to its post-GFC average and, in some scenarios, approach levels last seen during the post-WWII expansion and the dot-com cycle. Crucially, labor substitution – for now – is not the main story here. AI is becoming a force multiplier for knowledge work, expanding what firms and workers can produce.

Beyond the U.S., AI’s aggregate impact remains modest today, currently adding approximately 10 basis points per year to global productivity growth¹⁵. But the trajectory matters. In the best case, AI-driven productivity is estimated to lift global growth by c. 1 percentage point per year over the next decade¹⁶, with upside potentially up to 10 times larger than what is visible in today’s data as AI models improve, spread to more tasks, and become cheaper to deploy.

For private markets, the significance is straightforward. Our five-year base case remains intact, still assuming a more muted near-term backdrop followed by a stronger medium-term rebound as AI and technology investment translate into higher productivity and growth. The key update is that we now see a higher likelihood of an upside outcome driven by AI than we did previously.

In our view, that reinforces a more constructive medium-term backdrop for private markets investing – characterized by faster GDP growth, greater new business creation, and enhanced opportunity to drive revenue and profitability across portfolio companies. Specifically, for private market investors, the ability to identify where AI-driven productivity gains can translate into stronger growth, margin expansion, and operational improvement at the portfolio-company level can be rewarding.

A self-reinforcing flywheel is taking hold in AI. Rising adoption is funding faster innovation; better models and tools are unlocking broader enterprise use cases; and as returns become more tangible, they are pulling in further investment and deeper adoption – reinforcing the cycle.

This is already producing measurable returns. The average enterprise now reports USD 2.8 in return for every USD 1 invested in generative or agentic AI¹⁷, while nearly half of them report measurable cost savings or revenue gains¹⁸. Only 2-5% report no ROI at all.

In the U.S., enterprise adoption has risen from around 10% in early 2023 to 50% today, including a near doubling over the past 12 months¹⁹. Adoption remains highest among large technology firms, but implementation has broadened meaningfully across industries and company sizes.

In Europe, adoption remains slower, reflecting lower AI investment, more fragmented digital ecosystems, and longer implementation cycles, although markets such as the UK and Germany are moving faster than others.

For private markets, the flywheel is widening the investable universe in two ways. First, AI is accelerating new business formation in high-adoption industries, where lower barriers to entry and better access to tools are helping companies scale faster than in prior technology cycles. Second, it is creating a much larger opportunity to transform existing businesses by improving productivity and unlocking new growth as AI is embedded into core processes.

That is why the AI opportunity in private markets extends well beyond a narrow group of technology leaders. It increasingly lies in backing new AI-enabled businesses and, just as importantly, in helping portfolio companies across industrials, services, consumer, and healthcare translate adoption into operational improvement and measurable value creation.