Why the middle of the private markets stack is becoming the most interesting place to invest
By: Caitlin James
Private equity spent much of 2023 and 2024 in what might generously be called a period of reflection. Rising rates compressed multiples, exit routes narrowed, and the distribution drought that had been building since 2022 began to test LP patience in earnest. Deployment slowed, fundraising concentrated among the largest managers, and a persistent gap opened between what sellers believed their assets were worth and what buyers were willing to pay.
Against this backdrop, one corner of the private markets landscape quietly started to outperform: growth equity. While buyout activity seized on a handful of mega-deals and early-stage venture continued its own reckoning with the AI concentration trade, growth equity (an often-overlooked middle stretch of the private capital continuum) delivered some of the clearest signals of renewed vitality in 2025. Deal count and value climbed sharply year-over-year, fundraising share within private equity rose, and the structural forces underpinning the strategy look more durable heading into 2026 than they have in several years.
This article examines why growth equity deserves renewed attention, what is driving the current momentum, and how the evolution of secondary markets and co-investment structures is reshaping the opportunity set for investors seeking exposure to the strategy.
A Bright Spot in a Bifurcated Market
Through the first half of 2025, U.S. growth equity deal count was up 57% year-over-year, with deal value rising 63% over the same period, according to figures tracked by Ropes & Gray and sourced from PitchBook. That performance stands in sharp contrast to the broader private equity market, where volume was marginally down even as total value climbed on the back of fewer but larger transactions. Growth equity was also punching above its weight in fundraising: by mid-year, growth funds accounted for 24% of all U.S. private equity capital raised — a meaningful step up from prior years and a sign that allocators were actively rotating toward the strategy.
Figure 1: Growth Equity — Key Performance Metrics, 2025. Sources: Ropes & Gray U.S. PE Market Recaps (June/July 2025); PitchBook.
Part of what makes this resurgence compelling is the positioning of growth equity within the broader private markets stack. Buyout strategies have increasingly polarized toward the largest assets. These are deals with enterprise values in the billions that demand significant leverage, deep operating teams, and long hold periods to extract value. Early-stage venture, meanwhile, continues to grapple with the hourglass dynamic described well by practitioners in the field: outsized early rounds for a narrow cohort of AI-native companies, with the middle of the venture funnel squeezed and conversion from seed to Series A still depressed.
Growth equity occupies a different space. These are typically companies that have already demonstrated product-market fit, achieved some meaningful revenue scale, and are looking to accelerate expansion rather than fund basic operations. Entry valuations are better anchored to current performance than to speculative future states, and the absence of financial engineering means returns are driven primarily by operational improvement and revenue growth — a cleaner story to underwrite in an environment where macro visibility remains limited.
Growth equity lacks the higher risk profile of earlier-stage investing while still offering substantial upside potential. These later-stage entry points can still provide meaningful returns to investors and bring access to companies driving growth, particularly in sectors like AI.
That thesis resonates especially in the current rate environment. With the Federal Reserve having cut rates three times since late 2024 — bringing the benchmark down to the 3.50%–3.75% range by December 2025 — the cost of capital has eased modestly but remains elevated relative to the zero-rate era. In that context, strategies that do not depend on leverage to drive returns, and where the underlying companies are generating cash rather than burning it, look relatively more attractive than they did when cheap debt inflated the appeal of heavily geared buyout structures.
Companies Are Staying Private Longer
One of the most consistent themes in private markets over the past decade has been the structural extension of private company lifespans. The number of publicly listed companies in the U.S. has roughly halved over the past twenty years, while the private company universe has expanded dramatically. The implication is significant: the period of peak value creation, from proven product to scaled platform, increasingly occurs entirely within private markets. By the time these businesses reach a public listing, many of their highest-return years are already behind them.
According to analysis published by J.P. Morgan Private Bank, citing PitchBook and Bloomberg data, AI-related private transactions topped $140 billion in the first half of 2025 alone, up from roughly $25 billion across all of 2024. Software broadly has accounted for close to half of all growth deal volume. These are businesses with genuine revenue, real customers, and compounding data advantages — precisely the kinds of assets that growth equity is well placed to capture before they either list publicly or become acquisition targets for strategic buyers.
The exit pathway itself has also evolved. Approximately 60% of U.S. venture capital exits by value are now completed via buyout or acquisition rather than IPO, according to PitchBook data cited by J.P. Morgan. Secondary transactions, including structured secondary components attached directly to primary financing rounds, are appearing with increasing frequency, with over half of late-stage growth rounds in recent periods including a secondary element. This multi-track exit optionality reduces the binary risk that has historically made growth equity challenging to underwrite, and it gives investors more confidence in the liquidity profile of their positions.
The Secondary Market: From Safety Valve to Strategic Tool
No discussion of the current private markets environment is complete without addressing the dramatic expansion of the secondary market. What began as an emergency liquidity mechanism: a place for distressed LPs to offload positions at steep discounts- has matured into a sophisticated, strategically important corner of the alternatives ecosystem.
In 2025, global secondary transaction volume reached $226 billion, according to Evercore’s annual survey cited by Torys LLP, handily surpassing the prior record of $160 billion set in 2024. That figure was split roughly evenly between LP-led and GP-led transactions. The LP-led side was buoyed by processes from prominent university endowments, state pension plans, and sovereign wealth funds — investors using the secondary market as a deliberate portfolio management tool rather than a last resort. The GP-led side, led by continuation vehicles, has also been growing rapidly: CVs now represent approximately one in five sponsor-backed private equity exits, according to estimates from Evercore cited by Bain & Company in their 2026 Global Private Equity Report.
Figure 2: Global PE Secondary Market Transaction Volume, 2021–2025. Sources: Evercore 2025 Secondary Market Report; Torys LLP; Wellington Management.
The relevance to growth equity investors is direct. As exit timelines have lengthened (PitchBook data cited by Bain suggests roughly 40% of buyout fund NAV is now aged beyond seven years) the secondary market provides a critical alternative path to liquidity for managers holding high-quality growth assets that are not yet ready for a traditional exit. For LPs, secondary transactions increasingly serve as a tool for active portfolio rebalancing rather than a response to financial stress: survey data from the Raison capital research platform indicates that by 2024, more than half of sellers cited deliberate portfolio adjustment as their primary motivation for secondary transactions, up from 38% the prior year.
Pricing dynamics have also shifted in ways that matter for investors weighing entry points. The deep discounts of 2023 and early 2024, when VC stakes were trading at 30–50% haircuts to NAV, have narrowed considerably. By early 2025, average discounts had compressed to approximately 5% for LP-led transactions, reflecting a combination of improved underlying performance, stabilizing public market comparables, and growing competition among secondary buyers.
Secondaries activity makes up less than 5% of all private market activity — which leaves a great deal of room for continued expansion as the strategy becomes a base layer of private market portfolios.
Looking ahead, the secondary market appears well positioned for further growth. Dry powder among secondary buyers stood at approximately $215 billion at year-end 2025, with fundraising targets for the following twelve months reportedly close to $218 billion, according to Invico Capital. Cambridge Associates, in their 2026 outlook, estimates that continuation vehicles could account for at least 20% of all distributions in 2026 as LPs increasingly opt for liquidity over rollover into new vehicles. The direction of travel is clear: secondaries are transitioning from a niche tactical tool into a permanent structural feature of portfolio management for serious private market allocators.
Co-Investments: Fee Efficiency Meets Alpha
Alongside the secondary market, direct co-investments have emerged as a structurally important mechanism for investors looking to build concentrated exposure to growth equity opportunities. The logic is straightforward: co-investments allow LPs to follow their best managers into their highest-conviction deals, typically with reduced or zero management fees, while adding to positions in companies they already have insight into through their primary fund relationships.
Co-investment deal sizes have been expanding, and the trend is being supported from both sides of the table. GPs benefit because co-investments allow them to complete larger transactions without breaching fund concentration limits or diluting other portfolio positions. LPs benefit from the fee economics and the ability to selectively overweight their best performing managers. For growth equity in particular, where deal sizes have been rising (reflecting the larger scale at which companies are now raising private capital) co-investments offer an efficient way to build meaningful position sizing without relying solely on commingled fund structures.
Allocator appetite for the format continues to grow. A 2025 survey cited by With Intelligence noted that investors are increasingly prioritizing managers who offer access to low-fee or no-fee co-investments as a distinguishing criterion in manager selection. The broader shift from IRR to DPI (distributed to paid-in capital) as the primary performance metric — a theme that has dominated LP conversations for the past two years — has reinforced demand for co-investment access, since these structures tend to generate more timely and visible cash returns than the slower-moving primary fund cycle.
The Case for Continued Conviction
The conditions that drove growth equity’s quiet resurgence in 2025 are not abating. The underlying macro environment — gradually easing rates, improving M&A activity, a cautious but reopening IPO market — is directionally supportive. The structural forces, particularly the elongation of private company lifespans and the concentration of technological value creation in private markets, are accelerating rather than reversing.
Several headline exits in 2025, including CoreWeave and Figma, illustrated that the public market window, though narrow, remains viable for high-quality businesses with clear earnings trajectories. That matters for growth equity because the prospect of eventual IPO exit restores a degree of pricing discipline to the strategy: managers can no longer rely on perpetual private capital as an exit, and companies must be built with eventual public-market scrutiny in mind. That is a healthy constraint.
Full-year private equity deal value globally reached $2.1 trillion in 2025, a four-year high per KPMG’s analysis of PitchBook data, with the Americas accounting for over half of that total. EY’s year-end survey found that more than 80% of respondents expected continued positive momentum in deal activity in 2026. The challenge, as always, lies in manager selection. The spread between top and bottom quartile performance in growth equity is wide, and the strategies that are most differentiated tend to combine genuine sector expertise with the underwriting discipline to separate businesses with durable competitive advantages from those riding temporary tailwinds.
For investors who can access the strategy through proven, specialist managers, growth equity sits in an unusually interesting position: a less crowded part of the market than buyouts, better liquidity visibility than earlier-stage venture, and a direct line to the technology-driven value creation that is reshaping economies across nearly every sector. The pause is over. The interesting question now is how much of this recovery is already priced in — and where the next wave of genuine value is still forming.
