Issue 01 · September 2026
Titanbay's quarterly read on what is actually moving in private markets, and what it means for the people who have to operate through it.
The quarter in five numbers
The easiest way to misread the first half of 2026 is to look at deal volume and conclude that private markets has stalled. Volume did fall, by 34% year on year. But average deal size roughly quadrupled over the same period, which suggests sponsors have not withdrawn so much as concentrated, backing fewer positions with more conviction behind each one. That reallocation of risk appetite matters, though it probably is not what defines the year. The more consequential story sits downstream, in the $3.7 trillion of value locked in unsold portfolio companies and in a fourth consecutive year of thin distributions.
Conditions through Q2 were genuinely difficult to underwrite into. The March outbreak of conflict in the Middle East unsettled energy markets and pushed input costs higher, just as credit was tightening for lower-rated borrowers. The combination made it hard to build a case for anything marginal. Sponsors did not stop in response; they became considerably more selective about what they were willing to take to committee.
The shape that has emerged is a barbell. By 2025, deals over $1bn accounted for around 52% of US private equity deal value, the highest share on record. Fewer processes are running than a year ago, but those that clear tend to be larger and better supported. That is why the headline volume figure gives such a misleading impression on its own. Set it alongside average deal size and the picture changes, from a market that has seized up to one being much more careful about where it commits.
Sector mix has moved unusually quickly too. Technology and telecoms fell from 27% of deal volume to 11% year on year, with capital rotating into professional services, financial services, construction, and the assets tied to the physical deployment of AI infrastructure that some managers have started calling HALO (Heavy Assets, Low Obsolescence). It would be a mistake to read that as a retreat from the AI thesis. What seems to be happening is a change in how sponsors choose to express it, favouring the businesses that build, power and service AI deployment over the software layer sitting on top. That is a bet about where durable margin ends up, not a bet against the technology.
Somewhere around 31,000 portfolio companies are currently sitting unsold, carrying an estimated value of about $3.7 trillion. The investment-to-exit ratio is at a decade high of 3.14x. Distributions as a share of NAV sank to roughly 11% in 2024 and have now stayed below 15% for four straight years, which is long enough that it has stopped reading as a cyclical dip and started being treated as the operating environment.
One consequence is a quiet but decisive change in how managers are assessed, with DPI (Distributions to Paid-In Capital) displacing IRR (Internal Rate of Return) as the number that carries weight in diligence. The logic is not complicated. IRR can be supported by paper marks in a way that realised distributions cannot, and after four thin years allocators have become reasonably sceptical of marks. Baseline forecasts do see distribution rates improving by around five points in 2026, into the 17 to 19% range. That is a recovery from a very low base, not a resolution.
Confronted with a backlog that is not clearing under its own steam, the market has largely stopped waiting. NAV loans outstanding have reached an estimated $150bn. Secondaries volume hit a record $226bn in 2025, with roughly $250bn projected for this year, and credit secondaries alone had already passed the whole of FY2025 by mid-June. Both mechanisms are rational responses to a structural problem, and both introduce dependencies that were not there before. NAV lending adds leverage at the fund level just as portfolio-level leverage has become expensive. Secondaries pricing, meanwhile, is unusually sensitive to the financing conditions that are currently least predictable. What makes this worth watching is that the workarounds are now load-bearing rather than incidental, which turns their fragility from a technical question into something closer to a systemic one.
Aggregate capital raised is down more than 30% from 2023, with 2025 the weakest year since 2020. The commitments still being made are concentrating in established multi-strategy platforms, at the direct expense of emerging managers.
The pattern rhymes with what is happening in dealflow. Allocators whose own liquidity is constrained will tend to write fewer and larger cheques to a smaller number of managers they already know. For anyone raising a first or second fund, that has moved the bar from track record to operational credibility, on the reasoning that an allocator with limited capacity to diligence new relationships will default to whichever ones are easiest to underwrite.
Two central bank decisions in late July matter rather more to private markets than their headlines implied.
The Federal Reserve held rates at 3.50 to 3.75% on 29 July, but the vote split 9-3. Three regional presidents dissented in favour of a hike rather than a cut, citing inflation that has now run above target for five consecutive years. Equities sold off on the announcement, and expectations of a September cut have largely faded since. That matters because the sequence most asset managers had penned in for late 2026, where rates fall, refinancing eases and DPI recovers, now looks optimistic on timing. Sponsor leverage costs stay elevated for longer than planned, and underwriting for lower-rated credit stays tight.
The Bank of Japan held at 1% on 31 July, on an 8-1 vote. The more significant development was that Japanese authorities appear to have intervened directly to defend the yen, after it approached a 40-year low around ¥162.80 and then snapped back towards ¥157 within the hour. Governor Ueda used the press conference to flag a possible hike as soon as September, with core inflation expected to run clearly above 2% into the next fiscal year.
Together, those developments raise the odds of an unwind in the yen carry trade, which has quietly funded a meaningful slice of global risk-asset positioning for years. A disorderly unwind, of the kind seen in previous Bank of Japan tightening episodes, would tighten financial conditions well beyond Japan. It would do so precisely when the industry is leaning hardest on secondaries and NAV lending to work through the backlog, pressuring secondaries pricing and exit valuations at the point where the market can least absorb it. Private credit is showing some strain of its own in the meantime, with defaults at 6.0% in the 12 months to May 2026 and 93% of managers expecting flat or lower returns this year on spread compression.
The market is functioning rather than frozen, but functioning differently enough that the usual reference points are not much help. Dealmaking has taken a barbell shape: larger transactions, fewer of them, with a clear tilt towards defensive and infrastructure-adjacent sectors. Fundraising has followed almost exactly the same pattern. Underneath all of it, the exit backlog remains the constraint that governs everything else, and the July central bank signals suggest it will ease later and less smoothly than baseline forecasts assumed.
Three things will tell us whether that assessment holds. Whether the Bank of Japan moves in September, and how orderly the carry unwind is if it does. Whether Q3 distribution data shows the five-point improvement the baseline forecasts expect, or something thinner. And whether secondaries pricing holds up as volume pushes towards $250bn, because that is where any tightening in financing conditions will show first.
For asset managers, the practical implication is that liquidity planning needs a longer horizon than the consensus timeline implies, and that DPI should be the first question in an investor conversation rather than the third. For allocators, it argues for looking closely at how a manager is generating distributions, not simply whether they are. The gap between funds with a credible path to cash and funds relying on marks is going to widen from here, and considerably faster if the yen unwind arrives.
Private Markets Pulse returns in November 2026.