Good morning, {{First Name}}! This week, private equity is finding new ways to solve old problems. Secondaries are turning liquidity into a $260B parallel exit market, AI is starting to show up in valuation multiples, and the Fed is tightening again.

Today, we’re looking at what happens when liquidity no longer requires an exit, why AI is becoming an underwriting question, and what higher rates could mean for private markets.

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DATA DIVE

Stat: Secondary transaction volume reached roughly $260 billion on a trailing twelve month basis through June 2026, nearly double 2021 levels. First half 2026 volume alone hit a record $124 billion, with GP led and LP led transactions almost evenly split.

Context: Secondaries are no longer just where LPs sell unwanted fund interests. Sponsors can now move assets into continuation vehicles, give existing investors liquidity, bring in new capital, and keep owning the same company. Meanwhile, more than $200 billion of secondary dry powder gives buyers enough firepower to compete for increasingly large portfolios and individual assets.

Strategic Takeaway: Private equity is building a parallel exit market where liquidity and ownership no longer need to move together. For GPs, that changes portfolio management entirely. The question is increasingly not simply when to sell, but which liquidity structure preserves the most future upside while still returning capital today.

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TREND TO WATCH

Global private equity distributions rose to roughly $670B in 2025, the strongest level since 2021, but contributions also climbed to nearly $700B. The result is a market that looks healthier on gross activity while still failing to generate meaningful net liquidity for investors.

That matters because distributions alone do not solve the LP liquidity problem. In 2024, cashflows briefly moved close to neutral as distributions recovered, but 2025 slipped slightly negative again as capital calls rose alongside realizations.

For GPs, the message is uncomfortable. Exit markets can improve without producing a true liquidity reset if new commitments and portfolio funding needs absorb the cash coming back. For LPs, headline distribution growth may feel better, but DPI pressure remains.

The next phase of the cycle will depend less on whether exits recover and more on whether distributions can finally outpace contributions. (More)

EDITORIAL CONTENT BROUGHT TO YOU BY CAPLINK X PE150

Buying Copilot licenses is no longer an AI strategy. For PE, the more relevant question is whether AI is actually changing the economics of the portfolio company.

McKinsey’s analysis of 471 PE-backed companies across 31 industries suggests the valuation gap is already emerging. Companies using AI opportunistically traded at a median 13x revenue, versus 14x when AI improved the operating model. But the real step-up came when AI reached the product: multiples increased to 20x for companies embedding AI into products and services, and 31x for those using it to build new businesses and revenue streams.

The implication for sponsors is straightforward: AI maturity is increasingly an underwriting question, not just a post-close technology initiative. Proprietary data, complex workflows and deep customer integration can provide the defensive moat; AI-forward management can turn those assets into offense through better products, faster growth and operating leverage.

Correlation is not causation, but the signal matters. At exit, buyers won’t pay for AI pilots. They may pay for higher growth, stronger retention, better margins and new revenue created by them.

Bottom line: The AI question is shifting from “Are we using it?” to “What does this business become if AI works?”

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DILIGENCE CORNER BY 150 DILIGENCE

A new paper by Erwan Morellec and Francesca Zucchi offers a useful warning for PE investors underwriting data-heavy businesses: proprietary data can raise barriers to entry without eliminating disruption.

The authors show how incumbents can build a reinforcing flywheel—scale → more data → stronger AI/R&D productivity → more innovation → more scale. That can reduce the number of viable entrants and make a market appear increasingly protected.

But there is a catch: the challengers that do secure enough data and compute may become far more innovative, meaning fewer entrants can still produce more creative destruction.

For pre-deal diligence, the question therefore should not be simply, “How much proprietary data does the target own?”

Investors should test how unique, replicable, accessible, and commercially valuable that data really is—and how quickly a well-funded challenger could close the gap.

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MACROVIEW

The Fed’s latest 25 basis point hike to 3.75% to 4.00% matters less for the size of the move than for the change in direction. After easing through 2024 and 2025, policymakers are tightening again as inflation remains above the 2% target and higher energy prices add pressure to the outlook.

For private markets, that raises the probability that financing costs stay elevated for longer. It also introduces a second transmission channel: the dollar. If markets continue pricing additional Fed tightening while geopolitical tensions keep energy prices high, stronger demand for US assets could support the dollar and pull capital away from emerging economies.

History shows how quickly those flows can reverse. During COVID and the Chinese market shock, emerging market outflows approached or exceeded $35 billion within roughly three months. (More)