Chart of the Week
Aug 14, 2026
2 MIN READ
Fundamentals now drive private equity returns
New
Revenue growth and margin expansion drove 92% of U.S. private equity returns last year. Multiple expansion has taken a back seat in a higher-rate environment.
authors
Composition of U.S. private equity returns
Source: Gain.pro, as of December 31, 2025.
- Higher interest rates have ushered in a new regime for private equity investors.
- Throughout much of the 2010s, and peaking in 2021, private equity managers relied on inexpensive leverage to drive multiple expansion. Exit valuations contributed roughly 40% of returns for deals exited between 2017 and 2021.1
- That playbook has become less effective as higher borrowing costs have reduced the valuation tailwind that supported returns for much of the prior decade.
- Multiple expansion contributed just 8% of private equity returns last year, while revenue growth was the primary driver of exit value. Exits in recent years have increasingly been driven by operational value creation rather than financial engineering.
- The shift may favor U.S. middle market private equity, where lower entry valuations, more conservative leverage and greater opportunities to influence operations can provide a stronger foundation for value creation.
Today’s chart of the week highlights a key trend impacting private markets today. Explore this insight and more in our 2026 Midyear Private Markets Outlook: Between the tackles: Picking running lanes in an uneven market.