For Texas public pension trustees and administrators, 2025 felt like a long-awaited thaw. Dealmaking picked up. IPO markets reopened. Exit values climbed. On the surface, private equity looked healthier than it had in years. But the newest Global Private Markets Report 2026: Private equity — Clearer view, tougher terrain, released Feb. 10 by McKinsey & Co., offers a more nuanced signal. The fog may have lifted, the authors write, but the terrain ahead is more technical and demanding for both general partners and limited partners.

For TEXPERS members overseeing billions in retirement assets, the message is clear: improved activity does not equal easier investing. Structural shifts in returns, liquidity, and manager selection are reshaping private equity’s role in pension portfolios. Below are the key insights from the report and what they mean for fiduciaries charged with protecting promised benefits.

Dealmaking rebounds — driven by larger transactions

Private equity deal value increased 19% in 2025 to $2.6 trillion, according to McKinsey’s analysis. Global buyout deal value across all sizes reached nearly $1.8 trillion — up 20% from 2024 and the second-highest year on record.

At the same time, overall buyout deal count declined 5%.

Deals larger than $500 million increased 44% in value to $1.1 trillion — the highest year on record for deals of that size. Buyout deals valued at more than $2.5 billion rose 72% to more than $600 billion.

For trustees, this concentration matters. Larger sponsors increasingly shape overall industry value, while smaller and first-time funds capture a smaller share of fundraising.

Implication for pension systems: Scale and differentiation are increasingly decisive in manager selection.

Returns remain modest — especially relative to public markets

Despite stronger deal activity, returns remain subdued.

In 2025, top-quartile global buyout returns averaged 8% on a pooled internal rate-of-return basis. By comparison, companies in the S&P 500 returned 18%, and the MSCI World Index returned 22%.

Older buyout vintages are a major driver of this dynamic. Funds from the 2015–17 vintages are generating roughly 2% IRRs, pulling average buyout returns from 2015 to 2025 to about 6%, despite newer vintages showing largely unrealized 15% IRRs.

That performance gap matters for public pension plans that rely on private equity to help meet long-term actuarial return assumptions. When private equity trails public markets, allocation debates often grow sharper.

McKinsey also notes that over the past decade, top-quartile buyout funds have historically generated 24% IRRs, outperforming both the S&P 500 (15% total shareholder return) and MSCI World (13% total shareholder return).

Implication for fiduciaries: Manager selection and dispersion between top- and lower-quartile funds are increasingly important.

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Liquidity improves — but the backlog persists

Global PE-backed exit value increased 41% in 2025 to $1.3 trillion — the second-highest year on record. PE-backed IPO exit value nearly doubled year over year to more than $320 billion.

However, structural liquidity pressures remain.

More than 16,000 companies globally have been held for more than four years — representing 52% of total buyout-backed inventory as of 2025, the highest level on record. The typical company in a general partner’s portfolio is now held for an average of more than 6.5 years.

Distributions to paid-in capital as a share of total PE assets under management were 6% in the 12-month period ended June 2025, compared with an average of 16% from 2015 to 2019.

Secondaries transaction value increased 48% in 2025 to $240 billion, reflecting continued demand for liquidity.

Implication for trustees: Cash-flow modeling should reflect longer holding periods and continued reliance on secondary transactions and continuation vehicles.

Operational value creation replaces financial engineering

Between 2010 and 2022, leverage and multiple expansion accounted for 59% of buyout returns.

That model is shifting.

Median buyout entry multiples increased to 11.8 times EBITDA in 2025, compared with 11.3 times in 2024. At the same time, debt accounted for 37% of entry multiples in 2025, down from a 44% average between 2010 and 2022.

With higher purchase prices and relatively lower leverage contributions, revenue growth and EBITDA margin expansion are increasingly central to return generation.

Operating groups at private equity firms have, on average, more than doubled in size since 2021, reflecting a greater emphasis on value-creation capabilities.

Implication for boards: Trustees should evaluate not only a manager’s historical returns, but also the institutional strength of its operating platform.

Artificial intelligence reshapes underwriting and portfolio management

AI is emerging as both an opportunity and a disruption.

Only 6% of general partners currently see AI delivering high impact in their own internal operations and investment processes. However, 70% expect AI to deliver high impact within three to five years.

Healthcare (up 51%), technology (up 29%), and energy (up 28%) saw some of the largest increases in buyout deal value in 2025.

For pension fiduciaries, this raises new diligence questions. Sector exposure alone may be insufficient; asset-level AI readiness and operational adaptability increasingly matter.

Fundraising shows regional divergence

Global closed-end private equity fundraising declined 17% in 2025 to approximately $616 billion.

North American fundraising rose 8% year over year. European fundraising declined 41%, and Asia-Pacific fundraising fell 49% to $49 billion.

At the same time, alternative forms of capital are expanding. Fundraising into U.S. semiliquid private equity vehicles reached $204 billion in 2025, more than double the $92 billion in 2023.

Implication for public pensions: The competitive landscape is evolving as retail and semi-liquid capital flows increase.

LP sentiment remains steady

In McKinsey’s January 2026 survey of 300 global limited partners, about 70% reported plans to maintain or increase their private equity allocations in 2026.

That suggests institutional conviction remains intact — even as the operating environment grows more demanding.

For TEXPERS members, the takeaway is disciplined refinement, not retreat. Private equity remains central to many pension portfolios. But success increasingly depends on:

• Selecting scaled or highly specialized managers.
• Scrutinizing operational value creation strategies.
• Monitoring liquidity metrics and DPI trends.
• Evaluating AI integration and resilience.
• Preparing for longer holding periods and evolving exit structures.

The fog has lifted. Visibility has improved. But the terrain is steeper and more technical.

For trustees, that means sharper questions, stronger governance, and sustained focus on the ultimate goal: delivering secure retirements for Texas public servants.

About the Author: Allen Jones serves as TEXPERS' Director of Communications and Event Marketing. He brings more than two decades of experience in journalism and publication management and now guides the Association's strategic communications. [email protected]