The half in numbers
- Nearly 34,000 unsold portfolio companies at 30 June, against about 16,000 a decade ago (PitchBook)
- LPs net −$26bn in Q1; distributions running at 8% of NAV annualised (MSCI)
- Average hold at exit around seven years, against five to six through the 2010s (Bain)
- Secondaries $121bn in the half, +19%; GP-led deals $65bn, +35% (Evercore)
- Single-asset continuation vehicles $34bn, +88% — now over half the GP-led market (Evercore)
- PIK 11.1% of private credit loans, more than half of it added after origination (Lincoln)
What happened
Exits did not clear the backlog. Count fell to a decade low even as value held up on a few European mega-deals, and the queue grew by over a thousand companies in six months. Bain last valued it at $3.8trn.
Liquidity ran the other way. LPs were net payers in the first quarter. Distributions have sat below 15% of NAV for four consecutive years against a 2010–21 average near 25%, and roughly one institution in five is cutting its buyout allocation.
Where the pressure went
Not into exits — into financing. GP-led secondaries took the majority of that market for the first time, and continuation funds now account for 57% of NAV facility borrowers, up from 45%. Dividend recapitalisations put $94bn into PE-owned companies in 2025, around half of it paid out to sponsors. At the asset level PIK now runs to 11.3% of private credit interest income, more than half of it added after origination — on credits whose loan-to-value moved from 49% at closing to 86%. Private credit foreclosures reached $24bn in 2025, from $2.7bn two years earlier. Entry leverage, meanwhile, fell: equity cheques now run 7.8 turns of EBITDA, the heaviest since 2015, with debt down from roughly half the purchase price to a third.
What the authorities did
Four moves, none about interest rates.
The UK’s new carried interest regime took effect on 6 April. Carry is taxed as the profits of a deemed trade rather than as capital gain, with a 72.5% multiplier giving an effective top rate near 34.1% where it qualifies, a forty-month average holding period test, and no grandfathering. The territorial rule is the sharper end: a non-resident manager is taxed on carry attributable to UK-performed services, and a day counts once three hours of those services are performed here. HMRC has not yet published guidance.
Zurich reclassified distribution in asset management as an entrepreneurial function, to be compensated by a revenue split rather than cost-plus, with existing cost-plus rulings no longer extended and in some cases withdrawn. Private equity and hedge fund functions were moved years earlier. Other cantons are expected to follow.
In December the Dutch Supreme Court split an acquisition financing in two: interest on the share purchase was denied as fraus legis, interest on the refinanced portion allowed — replacing one loan with another shifts no profit.
And Pillar Two has become an exit item. The fund is usually excluded, but exclusion does not stop it being traced through for the €750m threshold, and where consolidation happens unrelated portfolio companies can be aggregated. Filing obligations arise even where the top-up tax is nil.
The ajiho view
Leverage did not go away. It moved up the structure — out of the portfolio company, where it is covenanted and visible, and into the fund, where it is neither. Subscription lines, NAV facilities and continuation vehicles sit above the assets, alongside feeders, aggregators, holdco chains, cross-guarantees and shareholder loans. Most fund structures have never had that perimeter drawn at all.
Then there is duration. A shareholder loan written for a five-year hold is in year seven or eight. It has been extended, and often accrued rather than paid. An extension on materially different terms is a new transaction, priced against the market on the day it is made — and that is not the market that priced it originally. The Dutch decision arrives at the same place from the other side: what the money was used for decides the answer, so a structure that has been refinanced, extended and layered needs the analysis run by tranche, not by entity.
Third, and least noticed, the manager’s own pricing is being reopened. Zurich has moved distribution off cost-plus and the OECD’s Chapter VII draft says some intra-group services need a two-sided method. A fund management group running cost-plus on a sub-adviser or a distribution entity is relying on a method that two authorities questioned in the same year.
Our call. The next wave of enquiries lands at the fund level rather than the portfolio company — NAV facilities, cross-guarantees and manager remuneration — and a cost-plus fund management entity becomes the hardest position to hold through 2027.
What this means for your business
- Draw the financial transactions perimeter before someone draws it for you. Subscription lines, NAV facilities, cross-guarantees and shareholder loans all sit inside it.
- Re-test every shareholder loan past its original maturity. Accrued interest that no lender would now advance against is a credit question, not a documentation one.
- Trace acquisition debt by use of proceeds, not by entity. The share purchase leg and the refinancing leg of one loan can now land differently.
- Review cost-plus anywhere in the management group — sub-advisory, distribution, support. Zurich has moved and the OECD services draft points the same way.
Sources
PitchBook (Q2 2026 US PE Breakdown; portfolio backlog data); Bain & Company (Global Private Equity Report 2026; Private Equity Midyear Report 2026); MSCI Private Capital Benchmarks Summary Q1 2026; Evercore H1 2026 Secondary Market Review; Lincoln International Private Market Index Q2 2026; Haynes Boone Fund Finance Annual Report 2026; Financial Stability Board, Report on Vulnerabilities in Private Credit (May 2026); ION Analytics. Finance Act 2026 (UK), carried interest. Zurich Cantonal Tax Administration, via Deloitte Switzerland, January 2026. OECD, public consultation on Chapter VII of the Transfer Pricing Guidelines, June 2026. Dutch Supreme Court, December 2025. OECD GloBE rules and Inclusive Framework administrative guidance. Market data as at 21 August 2026.