“You hear it every year now,” said Kyle Walters, PitchBook analyst. “You heard it in 2023, where private equity said: ‘It could come back this year.’ Then, you get to 2024, and 2024 is going to be a different year. Then, you get to 2025 and 2025 was a bit better, and people say ‘maybe this is the year.’”

U.S. private equity—with more than $3 trillion in assets under management—has been locked in a cycle of geopolitical uncertainty and possible rate hikes, along with the challenges of a rapidly concentrating market with limited exits. This was true in Q3 2026: Exit value for the quarter was down 14.1% year-over-year and deal value was down 13.6% year-over-year, according to PitchBook data. 

“AUM for the asset class isn’t growing nearly like it used to,” said Walters. “A 12% annual growth rate over the last ten, 15 years. We’re closer to half that now… This is the new norm, putting capital to work with headwinds in the market, and bringing companies to market with unresolved issues.” 

Fundraising, Walters pointed out, is especially tough and has “definitely gotten harder over the last 18 to 24 months,” he said. 

“Part of that is because of limited exits,” Walters told Fortune. “If you’re not getting distributions from your GPs, you have less capital to deploy, so you have to concentrate on fewer managers. That’s what we’re seeing take shape. But that’s not to say there are fewer managers raising capital. It’s that fewer managers are crossing the finish line, they’re fighting over scraps of the fundraising pie.”

This isn’t true of everyone, of course. The biggest firms remain massive. Take KKR, which hit its $300 billion fundraising goal (originally slated for three years, the raise took 30 months). However, a possible set of new interest rate hikes (even before the end of the year) could throw the sector into even more turmoil. 

“[If there’s a rate hike] instead of some gradual recovery I’ve been imagining, you probably get a Q4 that looks a lot like Q3,” said Walters. “That’s not bad, it’s not at 2025 levels but still above the doldrums you saw in 2022 and 2023 where activity wasn’t really happening at all. PE has penciled a lot of this in, so they’ve kind of broadly accepted that there’s a rate hike coming. So, if it doesn’t, it’s a pleasant surprise. You’ll still see transactions take place—it’s just not going to be at the scale we hoped for coming into the year.” 

As the weather forecast in Groundhog Day goes: “It’s going to be cold, it’s going to be gray, and it’s going to last you the rest of your life.” 

See you tomorrow,

Allie Garfinkle
X: @agarfinks
Email: alexandra.garfinkle@fortune.com

Submit a deal for the Term Sheet newsletter here.

Joey Abrams curated the deals section of today’s newsletter.

VENTURE CAPITAL

- TypeSafe AI, a San Francisco-based developer of AI models for software automation, raised $870 million in funding. Andreessen Horowitz led the round and was joined by Sequoia and existing investor DCVC.

- Oratomic, a Pasadena, Calif.-based developer of fault-tolerant quantum computers, raised $475 million in Series B funding. ARCH Venture Partners, Spark Capital, Khosla Ventures, Index Ventures, General Catalyst, and Bezos Expeditions led the round.

- Oxide Computer Company, an Emeryville, Calif.-based developer of on-premises cloud computing systems, raised $445 million in Series D funding. Eclipse led the round and was joined by USIT, Riot Ventures, Jane Street, and others.

- Kapta Space, a Seattle, Wash.-based developer of spaceborne radar payloads, raised $24 million in Series A funding. Washington Harbour Partners and Bison Ventures led the round and were joined by MetaVC and others.

- Loops, a San Francisco and Istanbul, Turkey-based commerce AI startup, raised $3.5 million in seed funding from a16z speedrun, NTT Docomo, Connecticut Innovations, Alumni Ventures, and Monday Capital.

EXITS

- AEA Investors and British Columbia Investment Management Corporation acquired Rensa Filtration, an Aurora, Ill.-based manufacturer, distributor, and service provider of consumable, high-purity air-filtration solutions for mission critical, high-growth applications, from Audax Private Equity. Financial terms were not disclosed.