Conference Presentation, Panel, Fireside Chat
Private Equity: Value Creation Under New Rate Regimes | Global Conference 2026
Milken InstituteHugh MacArthur, Joe Baratta, Martín Escobari, Raoul Hughes, Meredith Jenkins, Pete Stavros
- AI is expected to enhance data accessibility, strengthen incumbency, and automate most white-collar work, though the average impact across 130 current experiments is projected at 5% of EBITDA rather than the 50% transformation often cited.
- The firm anticipates significant pressure on profit pools from AI, leading to a strategic focus on identifying high-risk areas while maintaining digital infrastructure platforms as GDP-plus growth businesses.
- Market conditions are viewed as improving with a projected 50% increase in IPO volumes and 45% rise in sponsor sales, though the digest of over-deployment from 2018 to 2023 will take time, with a low VIX required for sustained success over the next six months.
- 2026 is predicted to be KKR's largest private equity exit year historically, while 2021 and 2022 vintages will likely experience holding periods extending beyond seven years due to maturity needs.
- Exit multiples for software companies are expected to decline compared to the previous five years, driven by a refreshed playbook that moves away from high leverage and R&D cuts, alongside a market-clearing price finding in public markets.
- The continuation vehicle market is anticipated to be utilized selectively for durable compounders rather than for charging higher fees on marked-up valuations, as many assets currently in such vehicles will require eventual exits via public markets or individual investors.
- Retail private equity vehicles face sustainability challenges as currently structured, yet they are expected to eventually support core strategies of acquiring larger companies if individual investors are managed responsibly.
- The alpha generation model will rely on sourcing, operational improvements including AI and talent density, and international diversification, with GPs evaluated on these factors rather than on "private equity beta" or industry trend spotting.
- Investment strategies will focus on specific dislocations or catalysts rather than broad industry spreads, with the industry projected to be less competitive at the $15–20 billion scale compared to the $2–3 billion space.
- Geographic and sector opportunities are identified in Japan's government-encouraged divestitures, Germany's mid-market family businesses needing capital, US energy transition services, and European defense, alongside a focus on lower-middle market operational improvements.
- A shift away from the 2021 playbook of high leverage and price hikes is expected, as the era of 80% low-cost debt has ended, making debt a less significant driver of long-term returns.
- The majority of recent deals are expected to be carve-outs and take-privates rather than sponsor-to-sponsor trades, with the firm aiming to become a category killer in the European upper mid-market.
- Business models reliant solely on bull market inflows are deemed unsustainable, and the incentive structure is expected to remain tied to cash-on-cash returns instead of NAV-based models.
- Consumer retail outlook differentiates between unsellable bricks-and-mortar entities and fantastic digital-native branded businesses, while "Yellow Page" point solutions face replication risks from LLMs and entrenched sales systems.
- Concerns exist regarding the liquidity of the private equity retail product set, the dilution of alpha from excessive scale, and the difficulty of finding exits for companies lacking an 8 to 10-year value compounding duration.
- The CV market is projected to remain small with only one or two transactions per firm possible before regulatory or structural constraints like "CV2" become necessary.