Remy Blaire: For years, private equity rode a golden conveyor belt: cheap debt, expanding multiples, and rapid exits that routinely delivered about 20% returns. And today that highway has hit hard gravel. According to McKinsey’s 10th annual Global Private Markets report, the sector is facing a profound maturity check. While headline buyout deal value rebounded 19% to $2.6 trillion last year, deal counts fell for the fourth consecutive year, and distributions to investors have hit historic lows. Over 16,000 portfolio companies remain trapped in an aging backlog, with macro tailwinds spent and leverage no longer carrying the load. Alpha has to be engineered. Joining us live here at the New York Stock Exchange is Alex Edlich, senior partner at McKinsey and lead author of the report. Alex, happy Friday. Thank you so much for joining us.
Alex Edlich: Thank you for having me.
Remy Blaire: When it comes to the details of the report, we have to keep in mind that we’re in the final quarter of 2026. So give us your few takeaways when it comes to the report itself.
Alex Edlich: The PE rebound is real, but it’s held back by a few things, which I call the [unclear: “wait, environment”]: war, AI, inflation, interest rates, and tariffs. When we started this year, remember we were coming off 2025, which was actually pretty good after a couple of years of being down. We had both exit volume increase and deal making increase. So we’re actually in pretty good shape. The first quarter was pretty good. [unclear: “If 2026 also”] third quarter, we found that exits were about $460 billion, which is the largest volume since the second quarter of 2021, and deployment is up about 8% over last year. So 2026 is shaping up to be pretty good. But remember, we’re also faced with conflict in the Middle East, inflation, global conflicts, tariffs. A lot of real change here. And we have 16,000 companies that have been held for more than four years. That’s about 52% of the total global portfolio. That’s not normal. We’ve got an average hold of 6.6 years. This is going to require a different playbook and a lot more to work through. We said in the report that the fog had lifted, but it was rockier terrain. This is certainly not our grandparents’ private equity industry.
Remy Blaire: Absolutely. As we stand here today, we’re coming off quite the week for the broader markets. When we think about the impact of the latest economic data, as well as the midterm elections, on policy, not to mention monetary policy, and that combined with geopolitics, we know this does add to some uncertainty moving ahead. So when it comes to the private markets, how are you looking at all parts of the equation?
Alex Edlich: It’s very clear that despite both the positives and the real negatives of this [unclear: “wait”] environment, the old playbook really doesn’t work anymore. The old playbook used to be: buy companies pretty low, put a bunch of leverage on them at cheap interest rates, and deal with market appreciation, [unclear: “multiple appreciations”]. That’s about 42% of the entire return, made up of those factors. If you can’t count on inexpensive leverage and you can’t count on multiple expansion, then you have to deal with real operational value creation. The old playbook really wasn’t oriented on that. So you have a lot of private equity firms investing in operational value creation teams to actually help their portfolio companies drive growth, margin expansion, and cash back. That’s the real focus that private equity firms need right now in this environment, despite all the turmoil.
Remy Blaire: You mentioned all those key points that affect this area of the market. But when you’re talking about the old playbook not working anymore, what does the new playbook look like?
Alex Edlich: I think there are a few things. One is there has to be some real price discipline. And it’s hard in this market where you’re saying, oh boy, I don’t want to touch software because that’s really challenged by AI, or some white-collar job industries that are really impacted by AI and what that implication is. So we see a lot of investors moving towards more blue-collar, more distribution-network-based industries. But that doesn’t mean you can take something that you used to pay a seven-and-a-half-times multiple for and now, all of a sudden, because of AI, pay an 11-times multiple. So purchase price discipline really matters. But then it comes back to operational value creation. How are you driving revenue growth? How are you driving margin expansion? How are you leveraging AI in marketing, IT, and pricing to really improve customer service, too?
Remy Blaire: Of course, all of us are watching artificial intelligence, whether we’re talking about it from a technology perspective, an investment theme, or even something as simple as how it affects our industries or even our roles. But as you are at McKinsey, how are you actually looking at AI as we head into 2027, and how does it matter when it comes to private markets?
Alex Edlich: I think there’s a real question for private equity firms about how they are leveraging AI to make better decisions on investment. How are you taking the information that’s out there about all the investments they’ve done in industrials and saying, how much should we pay for these companies? How much revenue growth did we drive? What was the realistic margin improvement that we were able to achieve? How many companies were we actually able to roll up? If we’re going to invest in a new company and we say we’re going to roll up 25 different companies in the next two years, how many times have we actually done that? Then there’s also this question of how you leverage AI as another member of the investment committee, completely dispassionate, sometimes a little bit rude, to ask the tough questions and to bring in data that isn’t necessarily there. And lastly, there’s a real question for all, particularly for software companies that PE has purchased a lot of. How are they repositioning those companies to defend the core, to get fit, to improve the products and services that they offer, but also build new businesses? We’ve got [unclear: “about 50, 40, 40 billion”] of debt that’s coming due for software companies in 2028, and about $35 billion in 2029. So we don’t have a lot of runway for those software companies that really are not in a great position.
Remy Blaire: And Alex, finally, before I let you go, we have a little over a month and a half until year end, and I’m sure you and your team are looking ahead to compiling the 2026 report. As we head into the final weeks of 2026 and you’re looking at all the data points, what would you say are the stark differences for this year compared to 2025?
Alex Edlich: AI is a much bigger factor, both in the impact on companies and in the choices of what sectors and companies investors are focusing on. That is a real question. But it’s not just the negative impact. There’s also some real positive impact, whether that’s on electricians and different trades to build out data centers. So there are some real positive tailwinds to a bunch of sectors there. That’s one. The second thing is that LPs have been on strike for a while. They want their money back. They gave it to the GPs, the sponsors, ten years ago, and they’re saying, until you give me my money back, I’m not going to give you any more. The good news is, I think we have a lot more exits this year than in the last couple of years. The third quarter was excellent. And so there’s [unclear: “a little bit of a question of the A companies”]. The A-grade companies have been trading. What’s really happening to the B-grade companies? And our investors are really going to get realistic about the price that they’re going to sell for.
Remy Blaire: Well, we only have a few more weeks left until [unclear: “the year or so”]. We’ll see how this year ends up. I look forward to welcoming you back when that report is released. I appreciate your time, and thank you so much for sharing all of [unclear: “your”].
Alex Edlich: Absolutely. My pleasure.
Remy Blaire: Thank you.
