Growth Equity Is Back — But Investors Are Choosing Their Winners

NEW YORK, 25 August 2026 — EBM NEWSDESK ANALYSIS. Anthiony Gill

Private equity growth funds have attracted record first-half inflows as investors return to a strategy that was hit hard by the valuation reset of 2022 and 2023. But this is not a broad reopening of the market. Capital is concentrating around a smaller group of managers — and increasingly around artificial intelligence.

A record first half

Growth equity is having an unexpectedly strong year.

US growth-focused private equity funds raised a record $33.2bn during the first half of 2026, according to Preqin data, around 36% more than during the same period last year. The rebound is particularly striking because fundraising for the strategy had fallen sharply after the technology valuation boom ended, dropping to about $29bn for the whole of 2023.

Growth funds occupy the increasingly valuable space between venture capital and conventional buyouts. They typically invest in companies that have already demonstrated significant revenue growth but still need large amounts of capital to expand before an IPO, strategic sale or mature private-equity transaction.

That position looked uncomfortable when interest rates rose and technology valuations collapsed. Companies that had raised money at extraordinary 2021 prices suddenly discovered that the next funding round could mean accepting a lower valuation, while fund managers struggled to return money to investors.

Three years later, the calculation is changing.

EBM has already examined how European private equity is moving aggressively into late-stage AI funding, and the latest fundraising numbers suggest institutional capital is following the same direction.

AI changes the fundraising equation

The most obvious explanation is artificial intelligence.

Institutional investors increasingly want exposure to companies such as OpenAI, SpaceX, Databricks and other private technology businesses whose valuations have risen far beyond the level accessible to traditional venture funds.

Thrive Capital provides the clearest example. Its latest vehicle, Thrive X, raised more than $10bn, with $9bn specifically allocated to growth-stage investments and another $1bn earmarked for early-stage companies. The fund is almost twice the size of its predecessor and was reportedly oversubscribed.

Thrive’s portfolio includes OpenAI, Stripe, SpaceX, Databricks, Cursor and Anduril — exactly the type of late-stage private companies institutional investors increasingly struggle to access elsewhere.

The trend mirrors the concentration EBM identified in Europe’s first-quarter technology funding market: fewer rounds, but substantially larger cheques directed towards companies investors believe have already established strategic importance.

Growth equity therefore offers pension funds, sovereign wealth investors and endowments something they increasingly want — exposure to high-growth technology without assuming the full failure risk of early-stage venture capital.

Lower valuations have helped

There is also a simpler explanation: prices are more rational than they were in 2021.

The growth-equity boom of the low-interest-rate period encouraged funds to pay extraordinary multiples for software and internet companies whose business models were built around seemingly endless revenue expansion.

When borrowing costs rose, those assumptions broke down.

Today’s investors can often enter companies at valuations that reflect more conventional expectations around profitability, cash flow and eventual exits. That does not mean assets are cheap — particularly in AI — but growth investors are no longer necessarily underwriting the same extreme multiples that characterised the previous cycle.

McKinsey’s latest private-markets research found that around 70% of institutional limited partners plan to maintain or increase their private-equity allocations during 2026. But investors are becoming far more demanding about manager selection, operational value creation and the ability to return capital.

That selectivity is important. As EBM explored in its analysis of the growing dominance of the biggest private-equity groups, fundraising has become increasingly concentrated among firms with established performance records.

The money is returning. It is not being distributed evenly.

The exit problem has not disappeared

This is where the recovery becomes less straightforward.

Private equity investment is running at enormous levels — more than $1tn was deployed globally in the first half of 2026 — but the number of exits remains unusually weak. KPMG recorded only 1,315 global private-equity exits during the first six months, the slowest pace in more than a decade.

Preqin similarly found that while second-quarter exit value improved sharply to $206bn, the number of transactions remained subdued. More than half of funds are now taking between 19 and 30 months to close, another indication that fundraising conditions remain difficult away from the strongest managers.

Private-market investors need distributions. Without successful IPOs, trade sales or secondary transactions, pension funds and other LPs eventually run out of capital to recommit.

That liquidity problem has helped create a boom in secondaries. Transactions in private-equity stakes reached a record $124bn during the first half, according to Lazard, as both investors and fund managers searched for ways to generate liquidity without waiting for conventional exits.

EBM has previously examined how the power structure of European private markets is changing as sovereign funds, private-equity houses and other institutional investors increasingly work together on larger transactions.

Europe has its own growth-capital problem

For Europe, the revival matters for another reason.

The continent has long produced promising technology companies only to lose many of them when they reach the point at which €500mn or €1bn of growth capital is required.

That is partly why Brussels selected EQT to manage the €5bn Scaleup Europe Fund, designed specifically to finance later-stage European businesses in AI, quantum, clean technology and other strategic sectors. EBM described the programme as Europe’s most serious attempt yet to build globally competitive technology champions without relying entirely on American capital.

Europe’s challenge is therefore not simply attracting more money into private markets. It is ensuring enough of that capital is available when its strongest companies move from start-up to global scale.

The broader opening of private assets to new pools of investors, which EBM analysed in European Private Markets Are Opening Up — Just Not in the Way Most People Expected, could eventually deepen that capital pool.

A rebound — but not a return to the old market

The record fundraising number should not be mistaken for a return to 2021.

That market rewarded almost any convincing growth story. The 2026 version is far more concentrated.

Investors want AI exposure, proven managers, stronger companies and clearer paths to liquidity. They are prepared to write very large cheques when those conditions exist — and increasingly reluctant to write them when they do not.

Growth equity is back.

But the indiscriminate growth-equity boom is not.