Private Equity: Value Creation Under New Rate Regimes | Global Conference 2026

AI Impact and Adoption in Private Equity

• Most private equity firms remain in the "experimentation mode" regarding AI; transformative results have not yet been fully realized despite media narratives suggesting otherwise.
• Current AI applications are primarily focused on efficiency gains within investor services, support functions, and internal business processes rather than direct investment decision-making.
• Proprietary, large-scale historical datasets held by incumbents serve as a critical competitive differentiator, potentially enhancing barriers to entry for new firms.
• KKR is currently running 130 live AI experiments across its portfolio of 225 companies to identify viable vendor-application combinations.
• The average impact of these AI experiments across KKR's portfolio is approximately 5% of EBITDA, contradicting headlines suggesting 50% transformations.
• Blackstone's primary challenge is not technology adoption but prioritizing "white-collar automation" to focus on the three core processes driving EBITDA and new revenue.
• The diffusion of AI talent and technology remains a hurdle, with firms seeking partnerships (e.g., Blackstone with Anthropic) to access cutting-edge scientists for specific priorities.

Software Investment Strategy and Terminal Values

• Firms are distinguishing between "Yellow Pages" software (point solutions easily replicated by LLMs) and durable infrastructure with deep customer entrenchment.
• Blackstone has adjusted its underwriting for software, avoiding assets with low-growth multiples and focusing on "digital infrastructure" like Illusion, which serves 90% of universities.
• LPs are demanding rigorous analysis of "moats," governance ties, and customer entrenchment to ensure software investments are not displaced by AI.
• Joe's assessment suggests a "hypothecation" of software values: some businesses will become unsellable (like brick-and-mortar retail) while others (like embedded payment systems) will endure.
• Future exit multiples for software companies are expected to be lower as the market corrects from the era of "growing perpetuity" valuations.
• Playbooks relying on financial engineering (leveraging R&D cuts and price hikes) are deemed ineffective; successful strategies must embrace AI to remain competitive.
• Blackstone recently executed a $7 billion IPO for Medline (a 2021 vintage deal), affirming public markets as the ultimate source of liquidity and valuation benchmark.

Exit Cycles and Liquidity Trends

• The average holding period for assets exiting in 2025 is seven years, with approximately 40% of portfolio companies still in the pre-2020 "pre-inflation/pre-rate hike" vintage.
• 2025 is projected to be a high-liquidity year with 50% growth in IPO volumes and 45% growth in sponsor sales across US, Indian, and Hong Kong markets.
• KKR anticipates 2026 will be its largest year for private equity exits in history, driven by the maturation of older assets and a bid for high-performing businesses.
• The current exit environment is constrained by the over-deployment of capital in 2021–2022, which will likely result in holding periods longer than the seven-year average.
• Continuation vehicles (CVs) are viewed as a useful tool but not a panacea; they are currently a small fraction ($60–70 billion) of total NAV ($3 trillion).
• Industry concern exists that the proliferation of CVs could become a mechanism for fee generation or deferring necessary exits rather than solving liquidity needs.
• LPs face resource constraints in underwriting CVs, with some receiving up to one proposal per week, creating a potential market opportunity for specialized intermediaries.
• Joe warns that if CVs become the default exit strategy rather than an exception, it signals underlying problems with the asset's saleability.

Private Wealth and Retail Capital

• Approximately half of global wealth resides with individuals, yet exposure to private equity remains minimal, creating a massive addressable market for retail products.
• KKR and other GPs emphasize that institutional drawdown funds are the foundation of their business; retail capital must complement, not replace, institutional capital.
• A primary challenge is aligning product structures with the non-liquid nature of private assets; current retail offerings may not yet fully capture the long-term value creation model.
• Joe argues that retail investors should not be excluded, provided they understand the semi-liquid risks and the products are not "leftovers" of institutional funds.
• Concerns exist regarding conflict of interest between closed-end funds and evergreen retail vehicles, particularly around co-invest allocation and valuation timing.
• Meredith notes that the industry must ensure fair evaluation metrics and avoid shifting to hedge fund-style carry models based on NAV, which could distort incentives.
• The ideal product for retail is an "evergreen co-invest vehicle" where investors gain access to the same deals, price, and terms as institutional LPs.

Alpha Generation and Competitive Advantage

• Three primary drivers of alpha identified: superior sourcing (filtering 7,000 companies to 30), operational improvement (including AI integration), and global portfolio diversification.
• Operational improvement is cited as the most sustainable and defensible source of alpha, requiring deep sector expertise and a long-term operational playbook.
• Talent density is increasingly critical; the "AI-ready" leader is defined as range-intelligent, capable of asking the right questions, and courageous in implementing change.
• Scale provides a competitive advantage in sourcing, data analysis, and operating support, but excessive scale too quickly risks diluting alpha.
• Bridgepoint highlights "relative scale" within a specific geographic and sector niche (European upper mid-market) as a strategy to outperform broader competitors.
• Blackstone leverages its large-scale position to access large-cap deals ($15–20 billion) which are less competitive than mid-market transactions.

Deal-Making Environment and Sector Focus

• The current capital stack (high cost of debt + high entry multiples) sets a high bar for returns, necessitating a shift away from financial engineering toward operational value creation.
• Martin notes that 80% of Bridgepoint's portfolio companies carry near-zero debt, with a strategic pivot to 60% non-US exposure.
• KKR is particularly bullish on carve-outs and "take-privates" from other sponsors, where they can implement significant margin improvements (e.g., 1,000 basis points).
• Geographic hotspots for 2026 include:
  • Japan: Driven by government encouragement of divestitures and excess cash reduction by the Tokyo Stock Exchange.
  • Germany: Focused on family-owned "Mittelstand" companies lacking succession plans.
  • Infrastructure: Opportunities in energy transition services and European defense sectors.
• Meredith suggests an opportunity in the lower-middle and pre-middle markets where operational improvements can yield significant value growth.
• Panelists agree that successful investing requires a clear catalyst for acquisition (e.g., family exit, non-core asset, sector dislocation) rather than generic market timing.