Key Takeaways
- We are at the halfway point of 2026, and the early promise of a strong recovery in private equity has run into the same headwinds we have been living with for a few years now.
- Aging assets, meaning portfolio companies held far past the usual timeline, remain a real drag on funds, on limited partners, and on the fiduciaries who answer for both.
- The way out is not one big event. It is interest rate cuts, closer agreement on price, and a working exit market, paired with disciplined governance and clean deal structures.
- For sponsors, 2026 is less about buying and more about managing what you already own, and doing it in a way that holds up to legal and fiduciary scrutiny.
Taking Stock at the Midpoint
We have reached the middle of 2026, so it is a good time to look back at the calls and assumptions we made when the year started. In that spirit, PitchBook has put out its US Private Equity Outlook: Midyear Update. The report revisits the predictions made for US private equity at the start of the year and asks a simple question. Did they hold up?
When we walked into 2026, there was real optimism, and for good reason. We were coming off a strong 2025. PitchBook calls last year the second-best year on record for deal and exit activity. But as has become the new normal, trouble at home and abroad has cooled expectations for a full and fast recovery.
What Aging Assets Really Are
One part of the market has felt these headwinds more than most. That is aging assets. In plain terms, an aging asset is a company a fund has held well past the traditional private equity timeline. That timeline used to run five to seven years. More and more, it is stretching to eight or ten. In the old days, sponsors expected to exit in three to five years. That changed when valuations got harder to agree on, the IPO window stalled, and interest rates jumped.
I have sat across the table from founders, sponsors, and limited partners through all of it, and the pattern is consistent. A company that should have been sold two years ago is still sitting in the fund, and everyone knows it.
Why Aging Assets Are a Legal and Fiduciary Problem, Not Just a Financial One
These assets put pressure on a portfolio in several ways. Capital stays trapped, which drags on fundraising, because limited partners become less willing, or less able, to commit to the next fund. There is concentration risk, because an older asset often makes up a large share of the unrealized value in a mature fund, so if it stumbles, it can drag down the whole fund’s numbers. And there is operational strain and debt maturity risk on top of all that.
Here is the part that gets less attention but matters just as much. Holding an asset too long is not only a financial issue. It is a legal and fiduciary one.
- Fiduciary duty. A general partner owes its limited partners duties of care and loyalty. When a fund holds an asset past its natural exit, the GP has to be able to show the decision was reasoned and in the fund’s interest, not just a way to keep charging management fees or to avoid marking down a bad deal.
- Conflicts of interest. Many of the tools used to manage aging assets, such as continuation funds and affiliate transactions, put the sponsor on both sides of the deal. That is a conflict, plain and simple, and it has to be handled with real process.
- Valuation and disclosure. An asset carried at a stale value raises hard questions. Regulators and limited partners both care whether the marks are honest and whether the risks were disclosed. Getting this wrong invites scrutiny you do not want.
- Fund life and LPA terms. Funds do not last forever. The limited partnership agreement sets the term, the extension options, and who has to approve what. As a fund runs out of runway, those terms stop being boilerplate and start driving decisions.
What the Numbers Say
At the start of 2026, PitchBook predicted that aging assets would exit more slowly than they did five years ago. We did see a welcome bump in exit count in 2025, but there was still a backlog of assets nearing maturity weighing on the industry. At the midpoint, PitchBook’s analysts think that call is tracking as expected. The market still has a good deal of time to go before these aging assets are meaningfully cleared.
The data backs that up. PitchBook shows that in the first quarter of 2026, US private equity inventory stood at 13,325 companies, up from roughly 12,900 in the third quarter of 2025. Of that total, 26.9% are seven years or older and 34.1% are four to six years old. Both figures are down a bit from the fourth quarter of 2025. That is progress, but we will need faster exit activity to move these assets in a real way, especially with a fresh wave of companies now nearing maturity.
What Would Get Things Moving Again
So, what would spur activity to pick back up? A few things have to line up.
First, we will need interest rate cuts. Lower borrowing costs widen the buyer pool and make the math on leveraged buyouts work again.
Second, we will need buyers and sellers to get closer on price. Sellers are still asking for more than buyers, who are more cautious today, are willing to pay. That bid-ask spread has to narrow before exit activity really moves.
Third, there is the IPO market, which has stalled in a big way. We do not need the IPO window thrown wide open. We do need steady, high-quality exits that reset valuation benchmarks and rebuild confidence.
Aging Assets as an Opportunity
Here is the interesting part. These aging assets also create an opening. They may end up being the source of the next wave of deal activity. The longer a firm holds a company, the more pressure builds to do something with it, whether that is a secondary sale, a structured exit, a minority recapitalization, or a continuation vehicle. At some point, time itself becomes the catalyst.
Each of those paths carries its own legal work, and none of it is optional. A secondary sale needs clean diligence and consent management. A continuation fund needs a real conflicts process, often an independent fairness opinion, and careful attention to what the limited partners are being offered and told. A minority recapitalization brings new governance and new investor rights into the mix. Structure done right protects the sponsor and the investors. Structure done carelessly is where disputes are born.
What This Means for Silicon Valley and the Innovation Cycle
This is not just a private equity problem. It reaches deep into the Silicon Valley ecosystem, and it touches the whole life cycle of technology innovation. That cycle only works when capital keeps moving. Money goes into a startup, the company grows, it exits, and that return flows back to investors who then fund the next generation of founders. When assets age in place, that cycle slows down, and everyone downstream feels it.
Here is how it plays out on the ground. When a fund cannot exit its mature companies, it cannot return cash to its limited partners. Those limited partners, which include the pension funds, endowments, and family offices that seed venture capital, then have less to commit to new funds. Venture firms raise smaller funds or wait longer to raise at all. That means fewer checks written to early-stage startups, and the founders coming out of Stanford, Berkeley, and the garage down the street find a tighter market than the one that came before them.
There is a talent effect too, and in Silicon Valley it matters as much as the money. Employees at these aging companies are often holding stock options and waiting for a liquidity event that keeps getting pushed out. When the exit does not come, that equity stays on paper. People stay in place longer than they planned, and the usual churn that sends experienced operators and their winnings into the next wave of startups slows down. The flywheel that turns one success into five new companies loses speed.
None of this is the end of the innovation story. Silicon Valley has been through cycles before and has always come out the other side. But it is a reminder that the health of the exit market is not a niche concern for fund managers. It sets the pace for how fast good ideas get funded, built, and turned into the next thing. When exits are stuck, the whole engine of the innovation economy runs a little cooler.
The Bottom Line
For private equity, 2026 is shaping up to be less about new buying and more about testing patience, managing the portfolio you have, and getting creative in the search for liquidity. The firms that come out ahead will be the ones that pair that creativity with discipline, sound governance, and clean structures that hold up when they are looked at closely. In this market, the quality of your process is not a footnote. It is the difference between a good outcome and a problem.
Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley, San Francisco, and Los Angeles offices, where he is a member of the Private Equity & Venture Capital, M&A, and Transactions Practices. This article is for general informational purposes only and does not constitute legal advice. Prior results do not guarantee a similar outcome.
