Private equity’s new playbook: operational muscle, evergreen funds, and the DPI revolution

Since early 2025, private equity has undergone a fundamental transformation, moving away from the easy-money era characterized by cheap debt and multiple expansion toward a model anchored in disciplined underwriting and operational alpha. This shift demands materially higher earnings growth—around 10–12%—and tighter execution on value creation plans, as the prior cycle's reliance on mid-single-digit EBITDA growth supported by low borrowing costs is no longer viable. The industry’s recalibration reflects a broader recognition that returns must now be manufactured through active portfolio management rather than financial engineering.

Top-tier general partners have responded by professionalizing their operating capabilities, integrating talent, data infrastructure, and repeatable go-to-market playbooks, often enhanced by in-house AI to boost productivity and decision-making quality. This operational rigor is exemplified by the 2026 take-private of OneStream Software, where investors combined commercial and technical diligence into a unified workstream to accelerate value creation from day one. Such 'full potential diligence' approaches underscore the industry's commitment to underwriting executable operating plans immediately post-close, compressing time-to-impact in a landscape where liquidity is scarce and exit markets are less reliable.

Industry veterans like Apollo’s Scott Kleinman have highlighted that the prolonged era of near-zero interest rates masked valuation risks and encouraged aggressive pricing, leading to what he terms a 'lost decade' of cheap money. The structural shift to higher rates and lower valuations has forced private equity firms to recalibrate expectations on exit values and fundraising strategies, particularly for vintages raised between 2017 and 2022, which now face underperformance pressures. This reckoning has accelerated the move toward operational value creation and disciplined asset selection as the new foundation for sustainable returns.

The post-COVID boom period from late 2020 through 2021 saw many general partners rushing to deploy capital at peak valuations with high leverage fueled by cheap financing, often compressing due diligence cycles. However, firms that maintained discipline on valuation and avoided overdeployment during this frenzy are now positioned to outperform, as consistent capital return (DPI) has proven a reliable indicator of long-term success. This evolution underscores that operational rigor and prudent deal-making are not just tactical adjustments but foundational to navigating private equity’s shifting return landscape.

By early 2026, private equity has decisively moved away from the leverage-fueled, short-term flip model that dominated the previous decade, embracing instead a disciplined focus on operational value creation and long-term strategic growth. Firms like KKR, with leaders such as Pete Stavros, emphasize that operational improvement is not only challenging but requires sustained, long-term discipline and significant internal resources—investment teams must 'own' the operational agenda and collaborate closely with management and external advisors to drive repeatable performance gains. This shift reflects a broader market reality where cheap debt is scarce, and value must be actively created during ownership through both organic and inorganic initiatives, rather than relying on financial engineering alone.

The evolving market environment, characterized by tighter acquisition return cases and heightened uncertainty, has elevated the importance of embedding rigorous strategy, innovation, and execution within portfolio companies to sustain value creation. KKR’s approach to maintaining a steady deployment pace—targeting 20% of fund capital annually with exits timed upon achieving 80% of operational goals rather than market timing—exemplifies the long-term discipline needed to generate consistent DPI. This operational rigor is increasingly recognized as the primary driver of alpha, surpassing thematic or sector bets, which are often fully priced and less repeatable, underscoring the necessity of repeatable systems and strategic patience amid slower deal activity and stretched LPs.

Operational improvements can yield transformative results, particularly in complex scenarios like carve-outs and take-privates, where firms have achieved margin expansions of up to 1,000 basis points or doubled growth rates. This hands-on operational expertise is cultivated through continuous learning and disciplined practices, such as KKR’s industrials team studying the Toyota production system and conducting multiple Kaizen events annually to embed operational excellence. Such deep operational focus not only drives superior performance but also aligns with a broader industry trend toward longer investment cycles and avoiding the compressed, high-valuation deal frenzy of 2020-2022, fostering healthier markets and more sustainable value creation.

As private markets enter a more selective phase around 2026, with rising performance dispersion and tougher fundraising conditions, consistent capital return—measured by DPI—has emerged as the critical metric for sustainable value creation, effectively supplanting IRR in investor priorities. Aberdeen Investments’ Nalaka de Silva highlights that fundamentals such as asset quality, income resilience, and disciplined capital deployment now matter more than ever, reinforcing the shift toward operational rigor and long-term strategies. Firms that maintained disciplined deployment and avoided the prior boom’s deal frenzy are positioned to outperform by delivering steady distributions and sustainable growth amid a more challenging and selective investment landscape.

By early 2026, evergreen funds had emerged as a significant and rapidly expanding force in the secondaries market, accounting for roughly 10 to 20% of buying volume and expected to double fundraising within a couple of years, according to industry voices like Taylor Robinson and Philip Hess. Unlike traditional drawdown funds that raise capital every few years, evergreen vehicles create continuous capital demand by raising funds monthly or quarterly, enabling more dynamic liquidity and capital certainty. This evolution is reshaping private market investing by offering diversified, ETF-like exposure to high-quality buyout assets at prices aligned with NAV growth, as noted by Mark Rowan of Apollo, thereby broadening investor access beyond institutional circles.

The rise of evergreen structures is closely tied to wealth management channels, as traditional institutional investors face allocation caps and full capacity, prompting fund managers—including venture capital giants like Sequoia—to adopt evergreen models to tap private wealth. This shift has fueled a surge in retail secondaries products, with fund launches in the U.S. jumping from 1-2 annually to nearly a dozen in 2025, reflecting strong appetite for more accessible private market exposure. Multi-manager evergreen vehicles further enhance this trend by packaging multiple funds to provide diversified exposure and broaden market reach.

Continuation vehicles (CVs), particularly single-asset GP-led structures, have become a dominant innovation in the secondary market, now representing about half of GP-led activity and driven by large LPs seeking sizable co-investments. However, LPs express concerns about being involuntarily rolled into CVs, prompting calls for protections such as optionality, tag-along rights, and status quo provisions to maintain alignment and investor control. Industry groups like ILPA are actively working to establish best practices around co-investment exit rights to address these conflicts and safeguard investor interests.

While continuation vehicles have flourished in buyouts, their adoption in venture capital remains limited due to regulatory hurdles—less than 10% of VC firms are registered RIAs, a prerequisite for CV use. Nevertheless, CVs serve critical functions in VC by providing liquidity, managing portfolio concentration, and alleviating bandwidth constraints amid a generational leadership transition. Emerging secondary market partnerships around high-value positions, such as Databricks and OpenAI, exemplify innovative approaches to balancing NAV concentration and demonstrating active portfolio management, highlighting CVs’ growing strategic role despite structural challenges.

By mid-2026, the LP-GP dynamic in private equity has been fundamentally reshaped by the rising prominence of independent sponsors, who are driving sharper deal sourcing and stronger alignment with LPs through flexible, deal-by-deal co-investment structures. Limited partners are aggressively backing high-caliber independent sponsors, attracted by their ability to offer rigorous due diligence and more tailored economics that traditional fund commitments often lack, as exemplified by TIFF’s pioneering dual-layer due diligence approach that unlocks value and reshapes portfolio construction amid market complexity.

Despite the enthusiasm for co-investments and continuation vehicles, LPs are increasingly vigilant about maintaining alignment and preserving investor choice, pushing back against practices that force co-investors into continuation vehicles without options to maintain status quo or tag-along rights. This heightened scrutiny is reflected in ILPA’s active engagement to establish clearer guidance on co-investment exit rights within GP-led continuation transactions, aiming to mitigate conflicts of interest as these vehicles now account for roughly 50% of secondary market activity driven largely by large LPs.

Top GPs distinguish themselves by proactively managing LP relationships through continuous communication and transparency, especially around key performance metrics like DPI, which LPs increasingly use as leverage during fundraising negotiations to ensure cash returns alongside paper gains. This evolving dialogue underscores shifting GP priorities over a fund’s lifecycle—from initial investing to fundraising and LP feedback management—while continuation vehicles, though more prevalent in buyouts, are gaining traction in venture capital as firms seek structural alpha despite regulatory hurdles.

By mid-2026, private capital fundraising strategies have notably evolved to embrace the growing wealth channel as institutional investors face full allocation and regulatory caps, such as insurance companies' portfolio limits. Leading venture capital firms like Sequoia have adopted evergreen fund structures, moving beyond traditional secondary coin models to provide direct access to high net worth and mass affluent investors. Additionally, innovative multi-manager structures that package multiple funds into direct programs are emerging to meet the nuanced demands of wealth investors, reflecting a broader shift toward more flexible and accessible fundraising vehicles.

The private capital market is grappling with mounting capital constraints as investors struggle to deploy into ever-larger funds amid an accelerating fundraising pace by sponsors. This pressure has catalyzed the expansion of the secondaries market and the rise of continuation vehicles (CVs) as customary exit strategies, attracting traditional investors and an increasing number of family offices as lead investors. BCI’s July 2026 launch of a capital solutions strategy targeting secondaries and CVs underscores this trend, offering structured pathways to attractive returns in a selective environment where direct LP participation remains limited and cautious.

Despite ongoing sector uncertainties, particularly in technology, private equity fundraising volumes have rebounded to pre-disruption levels by Q2 2026, marked by a new record high in fundraising and a significant shift in capital solutions. Schroders forecasts a tripling of GP-led fundraising volumes, signaling a major market transformation driven by innovative capital strategies and heightened investor appetite. This resurgence indicates a broadly recovering private equity environment that is adapting dynamically to complex market conditions and evolving investor preferences.