Private equity is rebounding on paper — the cash is still stuck

The rebound

Private equity returned 5.3% in the second quarter, and venture capital returned 12.2%, according to Callan's research. The Russell 3000 public market equivalent jumped 15.4% in the second quarter. m:…0542

Artificial intelligence did most of the work. AI represented 82.7% of year-to-date venture capital deal value through the third quarter of 2026, Callan reports, and SpaceX's initial public offering was a primary driver of venture capital exit value in the first half of 2026. Venture capital fundraising in 2026 has already surpassed its 2025 total. m:…0542

But the rebound has not reached investors' bank accounts. Distributions over the trailing 12 months through the second quarter of 2026 totaled 12% of beginning net asset value, Callan reports, against a historical norm of approximately 20%. Buyout activity slowed in the second quarter due to software repricing, inflation, wider credit spreads and interest rate uncertainty, and add-on acquisitions accounted for 75% of US buyouts year to date in 2026. m:…0542

The cash problem

The plumbing is adapting to the drought. The secondary market is positioned for continued growth due to limited partner liquidity needs and increased use of continuation vehicles, according to Adams Street Partners, and continuation vehicles account for approximately 14% of global sponsor-backed exit volume. Available buyside capital in the secondary market is estimated at approximately 1.2 times trailing annual transaction volume. m:…6347

Adams Street expects the pattern to continue into 2027: buyout returns will depend more on revenue and EBITDA growth, sector expertise and operating capabilities than on leverage or multiple expansion. Deal activity is expected to pick up more meaningfully during 2027, though tariff uncertainty, interest-rate concerns, geopolitical risks and AI disruption are weighing on it. In venture growth, AI investment in 2027 will focus on category leaders with defensible customer relationships and data advantages rather than broad AI-native traction, the firm says. m:…6347

The concentration is visible in the deal flow itself. US venture-growth deal value fell to $30 billion in the third quarter from $197 billion in the first quarter, according to Callan, which means the year's venture story is increasingly a story about a small number of very large transactions. m:…0542

Where the new money goes

Pension plans face a different version of the same concentration problem. The concentration of AI-related names in the Bloomberg US Corporate Long AA Index increased from 21% to 40% between December 31, 2024, and September 30, 2026, according to Cambridge Associates, and companies are increasingly funding AI infrastructure buildouts through investment-grade corporate debt. AI-related bonds in the index currently yield 6.83%, while non-AI bonds yield 6.27%, a pickup that helps pension funded status today, but downgrades of AI-related issuers could increase pension liabilities by 0.5% to over 2.0% depending on the methodology used. m:…4104

New money is still being raised, but it is going to new places. H.I.G. Capital has formed a creator economy investment platform called Waveborn, which has acquired Jake Rosen Entertainment as its foundational asset. The agency represents a roster of over 400 exclusive creators with a combined following of more than one billion, has completed more than 24,000 brand deals and averages nearly 100 new brand deals per week. H.I.G. Capital has $76 billion of capital under management. m:…5991

The picture that emerges is a market that is performing, illiquid and selective all at once. Returns are back, distributions are not, and the firms raising money for 2027 are promising operations rather than leverage. For limited partners, the question is no longer whether private markets recover. It is when the recovery turns into cash. m:…0542 m:…6347