Private equity’s new playbook: Manufacturing alpha in an AI-disrupted market
Private equity activity is beginning to recover, but the market is not returning to its old playbook. At SuperReturn International, Christopher Croke, Partner, McKinsey & Company, and Fred Pollock, Chief Investment Officer, GCM Grosvenor, discussed how high entry multiples, longer holding periods and widening AI disruption are changing where investors find and create an edge.
• Private equity deal activity is recovering, but high valuations and a record exit backlog are making returns harder to generate.
• GPs increasingly need to identify and underwrite operational value creation before completing an acquisition.
• AI is increasing the importance of proprietary data, judgment and execution.
• Disruption is likely to extend beyond software into life sciences and other knowledge-based sectors.
• Specialist investors may be better positioned to distinguish between AI’s beneficiaries and the companies most exposed to it.
A recovery that does not look like the old cycle
Croke describes a private equity market showing signs of renewed activity. McKinsey’s analysis found that the value of buyout deals above $500 million increased by more than 40% in 2025, with over $1 trillion transacting in that segment. That rebound is encouraging, but it does not mean conditions have returned to normal.
Purchase-price multiples remain close to historical highs. Meanwhile, approximately 16,000 companies have been held in GP portfolios for more than four years, according to Croke, more than twice the combined number of listed companies across Europe and the US.
For Pollock, the wider mood has improved since the previous year, but stronger transaction data is still needed. Interest rates remain high, and the expected decline in borrowing costs has not yet unlocked deal activity to the extent many investors anticipated.
From finding alpha to manufacturing it
In a market where entry prices remain elevated, buying a strong company at an attractive valuation may no longer be enough.
We think about a shift from finding alpha to manufacturing alpha.
Christopher Croke, Partner, McKinsey & Company
Croke says more GPs are identifying operational and pricing opportunities during diligence rather than waiting until ownership begins. Capital productivity, site consolidation and other familiar value-creation levers must be identified early and incorporated into the underwriting case.
The shift is less about discovering entirely new value-creation tools than proving, before the deal is signed, that the available upside is credible and achievable.
Leadership is also attracting greater scrutiny. Croke highlights what McKinsey calls “CEO alpha”: the role portfolio-company leaders play in delivering returns. Sponsors may need to improve how they select, assess and support leaders rather than relying on frequent management changes after acquisition.
Longer holds require more exit options
Exit planning is becoming more important as assets remain in portfolios for longer.
Average holding periods have moved beyond six years, and Croke says sponsors may increasingly need to prepare for investments lasting ten or even 12 years while still meeting LP return expectations. That makes it essential to have multiple potential exit routes. Where an industry contains only a limited number of strategic buyers, the sponsor must be confident that at least one will ultimately want the asset.
The reopening of the IPO market may provide another route, but it does not remove the need to plan exits much earlier in the investment process.
AI is disrupting more than software
Pollock believes investors are underestimating how widely AI could reshape portfolio companies. Software is receiving much of the immediate attention because AI-assisted coding creates questions around the durability of some recurring software revenues. But the business plans of major AI developers extend far beyond coding.
The entire remit of knowledge work is potentially under threat.
Fred Pollock, Chief Investment Officer, GCM Grosvenor
Life sciences and other knowledge-intensive sectors could also face significant disruption. Private equity investors therefore need to assess AI exposure across a wider range of companies than the technology sector alone.
At the same time, Pollock expects AI to contribute to a considerable acceleration in economic growth over the next five years. The challenge is identifying where that growth will create value, and where existing business models may weaken.
Proprietary advantage becomes more valuable
Croke does not believe AI will simply commoditise investment analysis and remove the need for differentiation. Instead, easier access to public information could increase the value of what competitors cannot replicate: proprietary data, long-standing relationships, judgment and execution.&nbs
The edge that you as a GP have is going to be more linked to the proprietary data that you own and how you use and deploy that.
Christopher Croke, Partner, McKinsey & Company
The same applies to portfolio operations. When a GP uses AI to improve one process or system successfully, the larger opportunity is to repeat that model across another 15 or 20 portfolio companies. This ability to transfer knowledge and execution repeatedly may become a more important source of advantage than using AI for isolated experiments.
Specialists versus tourists
Pollock argues that disruption will not affect every company within a sector equally. Some software businesses may be challenged, while others benefit from AI adoption. That makes sector depth particularly valuable.
If you’re a tourist in one of those areas, you’re much more likely to be negatively affected
Fred Pollock, Chief Investment Officer, GCM Grosvenor
A specialist investor may be better equipped to understand where defensibility remains, which companies are positioned to benefit and where AI is likely to undermine existing economics.
Croke identifies a related pressure on the GP market. Large multi-strategy platforms continue to grow, while clearly differentiated specialists can compete through a defined edge. The firms most exposed may be those in the middle that previously relied on recognising a good business and paying the right price.
Where private equity’s edge is moving
Technology is enabling investors to process more information faster than before. But neither Croke nor Pollock sees that as a substitute for expertise. The emerging playbook combines operational value creation, proprietary information, sector knowledge and repeatable execution.
GPs must understand both how AI can improve their own investment process and how it may disrupt the companies they own. The private equity market may be recovering. The more important question is whether firms are adapting quickly enough to compete in a market where the sources of return are changing.