Article
Is the “demise” of the private equity asset class real?
Feb. 12, 2026 · Authored by Luc Arsenault
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Article
Feb. 12, 2026 · Authored by Luc Arsenault
Throughout 2025 and into 2026, there have been numerous business articles highlighting the continuing aging of private equity (PE) portfolios and portfolio companies, low Distributions to Paid-in-Capital (DPI) to Limited Partners (LPs) and “zombie funds” (i.e., funds holding overvalued assets with limited prospects of a successful sale of those assets). These hyped headlines and stories often suggest a pending PE asset class collapse and, with it, the demise of many PE funds.
Yet that narrative doesn’t align with what we’re seeing across the market, including in conversations with PE clients. Rather than settling for faster portfolio returns, many are emphasizing strategic value creation. Despite external pressures to sell, longer hold times often reflect a focus on exit optimization (creating the most value) as opposed to exit readiness (simply being prepared to sell).
Historically, the typical PE fund portfolio company hold period of roughly five years is based on a buy-and-build strategy (i.e., organic growth + add-on acquisitions). A PE fund’s hold period can normally be broken down into two main phases:
This phase consists of organic growth and/or growth by acquisitions. Add-on acquisitions enable companies to expand product and service capabilities, diversify the customer base, grow the geographic footprint, improve supply chains, upgrade systems and technology and add management talent. In addition, acquisitions enable PE to drive EBITDA multiple arbitrages by buying platform companies and add-on acquisitions at a lower average EBITDA multiple than the targeted exit EBITDA multiple.
During this period, PE fund professionals and portfolio company management focus on acquisition and growth integration; upgrading financial reporting, ERP, IT and other technology infrastructure, as well as improving management depth and ensuring operational discipline to drive sustainable EBITDA.
Headlines and narratives around DPI may be gaining traction in the media; however, they do not fully reflect what many PE firms and portfolio companies are experiencing. In our ongoing conversations with fund principals, we continue to see business growing, exits being completed with distributions to LPs and new funds being raised. In fact, many PE clients’ investment returns continuously outperform the major stock market indexes (e.g., S&P 500), which demonstrate their disciplined investment approaches and long-term value creation strategy.
Baker Tilly’s market intelligence reveals that PE clients are focused on creating value through the entire investment cycle so that the next buyer can acquire a business that is positioned for sustained success. PE firms view the four-to-five-year investment cycle (described above) as a dynamic to create continual shareholder value. PE General Partners (GPs) and their LPs are sophisticated and disciplined investors who are focused on generating strong returns on invested capital. GPs will retain ownership of portfolio companies for longer periods if needed, and especially if they believe longer hold periods will deliver better returns.
There may be a current bottleneck in capital being returned to LPs – created by slower or delayed PE fund and/or portfolio company exits – resulting in historically low DPI and making PE fundraising more challenging. However, we are not seeing “fire sales” in our PE client base. Instead, the PE industry may be shifting from an era of quick portfolio turnover, where some value was created through financial engineering, to a more mature, value-creation mindset focused on driving sustained growth through operational expertise and discipline.
One may wonder whether media narratives around low DPI, aging PE portfolios and zombie funds are driven more by the appeal of headlines than on the reality of the PE asset class fundamentalists that enable LPs to diversify investment portfolios to achieve sustainable investment return performance over time.
