Welcome to this week’s edition of The Private Capital Compass, brought to you by Private Capital Global (PCG), a Sparc Group company.

In this edition, we explore the evolving landscape of private equity and portfolio value creation, from Europe’s resilient PE market heading into 2026 to industrial M&A activity ramping up as tariffs ease, interest rates decline, and capital remains abundant. 

We also spotlight how family offices are preparing for a generational transition that could reshape investment strategies, and examine actionable insights on operational discipline and growth frameworks that any company or portfolio business can adopt to accelerate performance.

We highlight strategic approaches for navigating complex markets, including BDO UK’s five value creation levers for PE, McKinsey’s operational practices for driving long-term outperformance, and recent private credit and partnership trends exemplified by KKR’s collaboration with Sallie Mae. 

Finally, we dive into portfolio leadership strategies that combine customer-centricity, digital transformation, and disciplined execution to sustain growth and create durable value.

Compass Points

Key insights at a glance:

• European PE To Enter 2026 with Strong Confidence: A new report from Ropes & Gray LLP indicates that European private equity leaders are entering 2026 with notable optimism: 52.1% of respondents say they are “very confident” in the market’s health, and an overwhelming 94% expect transaction volumes to increase over the next year. However, this confidence is balanced by three persistent challenges—an increasingly burdensome regulatory environment that slows deal-making, a constrained exit landscape driven by valuation gaps, tight credit, and a muted IPO market, and widening tension in LP/GP relationships as LPs express greater caution and rising frustration over transparency and reporting. Despite these pressures, Europe continues to attract heightened interest, particularly from US investors drawn to comparatively attractive valuations, political stability and the need to deploy significant dry powder. In response, firms are becoming more selective, leaning into alternative exit routes such as recapitalisations and continuation vehicles, and sharpening their strategic focus through consolidation and sector specialization.

• Heirs Set to Reshape Family Office Investing: Survey Reveals Generational Shift in Wealth Strategy: A recent Bank of America survey of 335 family offices, including 60% with at least $500 million in assets, highlights a pivotal generational transition in ultra-high-net-worth investing. While 87% of these offices have yet to transfer assets to heirs, more than a third of firms with fully involved principals anticipate significant changes in mission, governance, and investment approach once the next generation takes control. Key areas of expected transformation include a stronger emphasis on philanthropy, simplified governance, broader adoption of technology and artificial intelligence, and increased allocations to alternatives such as private equity, direct investments, real estate, and even cryptocurrencies. Despite potential family disputes in offices where principals are less involved, respondents largely expect heirs to grow the fortune, sustain ESG and impact investments, and drive more strategic, tech-enabled operations. 

• Industrial M&A Poised for Growth as Tariffs Ease, Rates Fall, and PE Capital Remains Abundant: Industrial M&A is accelerating after a slow start to 2025, as easing tariffs, declining interest rates, and abundant private equity dry powder converge to create a highly active deal environment. While Q2 volumes were down year-over-year, deal value remains robust, particularly in automotive, food & beverage, and domestic manufacturing sectors. Private equity firms are leveraging long-held portfolio companies, continuation funds, and operational improvements to drive exits, while strategic buyers pursue divestitures and acquisitions to meet investor growth expectations. Experts anticipate that heightened competition for quality assets will sustain a “scarcity premium,” driving aggressive valuations and robust deal activity through 2026. For private capital executives and portfolio company leaders, the trends underscore the importance of proactive value creation, risk preparedness, and early engagement with advisors to optimize transaction outcomes and capture upside in a rapidly evolving industrial M&A landscape.

• Deep, Strategic Value Creation Becomes Imperative as PE Faces Longer Holds and Market Complexity: A recent analysis by BDO UK highlights the evolving challenges and opportunities for private equity firms operating in a more complex, high-valuation environment. With fundraising down nearly a third since 2021, record dry powder of $2.5 trillion chasing limited quality assets, and hold periods extending to some of the longest in recent memory, PE firms must double down on operational value creation to deliver sustainable returns. BDO identifies five strategic levers: broadening and deepening value creation planning beyond top-line growth into operational and back-office efficiency; leveraging AI thoughtfully to multiply insights and productivity; proactively managing risk through agile governance and scenario planning; executing fully on integration business cases with realistic targets and resourcing; and pursuing international and untapped investment opportunities to capture additional upside. The guidance underscores that competitive advantage now resides not in financial engineering alone, but in disciplined, data-driven operational rigor, early and precise initiative execution, and the ability to adapt swiftly in volatile markets.

• Operational Discipline, Not Financial Engineering, Drives Private Equity Outperformance: A recent analysis by McKinsey & Company partner Marla Capozzi challenges the persistent myth that private equity’s advantage lies primarily in financial engineering, highlighting instead the outsized impact of disciplined management practices that any CEO can adopt. Drawing on research across hundreds of companies, Capozzi and her coauthors identify six key operational levers: running full-potential diligence continuously, aligning leadership roles to a clear value-creation thesis, restructuring labor to enhance productivity, pruning low-value or cash-negative revenue, tracking initiatives transparently, and treating leadership time as a strategic asset. With elevated capital costs and less forgiving multiple expansions, firms that embed these practices can drive superior cash flow, execution speed, and time-to-impact, independent of ownership structure. For private capital executives, operating partners, and portfolio company leaders, the insight is clear: disciplined operational rigor remains the core differentiator, and intentionally applying these levers can unlock measurable value creation and resilience in both PE-backed and standalone enterprises.

Deal Spotlight: KKR and Sallie Mae Launch Multi-Year Private Credit Partnership

Transaction: Sallie Mae, the leading private student lender, has entered into a multi-year strategic partnership with global investment firm KKR. Under the agreement, KKR will acquire an initial seed portfolio of private education loans and commit to purchasing at least $2 billion in newly originated private student loans annually over an initial three-year term. Sallie Mae will retain all servicing responsibilities, earning ongoing fees for program management and leveraging its expertise in the education lending space. The partnership is structured to enhance Sallie Mae’s capital efficiency and loan origination capacity while enabling KKR to deploy flexible, asset-based finance capital through its managed credit funds. Morgan Stanley served as sole structuring advisor to Sallie Mae for the transaction.

Why It Matters: This deal marks a notable evolution in private student lending, highlighting a trend toward off-balance sheet financing solutions that allow lenders to scale without overextending their capital. By partnering with KKR, Sallie Mae can expand its lending capacity and maintain a steady, capital-light earnings profile while continuing to manage customer relationships directly. For KKR, the transaction exemplifies the growing opportunities in asset-based finance, where disciplined underwriting and structured credit can generate attractive risk-adjusted returns. It reflects broader market dynamics in private credit and alternative financing, where institutional investors increasingly seek predictable cash flow-generating assets outside traditional corporate debt.

The partnership also signals a potential shift in how private lenders may approach growth: rather than relying solely on balance sheet expansion, they can strategically partner with large-scale investors to access new capital efficiently. This model could influence similar deals in other niche lending sectors, including healthcare, small business, and specialty finance. As Sallie Mae scales its origination capacity and KKR deploys capital, market participants may see this as a blueprint for future collaborations that combine operational expertise with institutional investment to unlock growth while mitigating risk.

Deep Dive: Rewriting the Value Creation Playbook: From Cost Optimization to Strategic Growth

The private equity operating model is undergoing its most significant transformation in a generation. As holding periods stretch beyond six years and multiple arbitrage becomes increasingly elusive, portfolio companies can no longer rely on the traditional playbook of operational efficiency and cost reduction to deliver targeted returns. Operating partners and value creation teams are now confronting a fundamental question: How do we build companies capable of sustainable growth in an environment where financial engineering has reached its practical limits?

The answer lies in a deliberate pivot from defensive optimization to offensive growth strategies—but the execution is far more nuanced than simply shifting focus from the income statement to the revenue line.

The Strategic Reorientation

Traditional value creation frameworks emerged during an era when holding periods averaged 3-5 years and exit multiples could be reliably engineered through EBITDA margin expansion. That equation no longer holds. Today's portfolio companies require transformation initiatives that compound value over extended timeframes, which means the playbook must emphasize scalable growth infrastructure over one-time efficiency gains.

The most sophisticated funds are now structuring their value creation frameworks around three core pillars: commercial excellence, digital enablement, and ecosystem expansion. Unlike legacy approaches that treated growth initiatives as secondary to cost reduction, this framework positions revenue acceleration as the primary value driver, with operational efficiency serving as an enabler rather than the centerpiece.

In practice, this means portfolio companies are investing significantly more capital in sales force effectiveness, pricing optimization, and customer acquisition systems during the first 12-18 months of ownership—traditionally the period reserved for aggressive cost rationalization. One middle-market software company backed by a growth equity firm exemplifies this shift: rather than immediately consolidating vendor relationships and trimming headcount, the operating team deployed a sophisticated revenue operations platform, restructured the sales organization around customer segments, and implemented dynamic pricing models. The result was 40% revenue growth in year one, even as the company simultaneously achieved modest margin improvement through strategic automation.

Digital Transformation as Growth Infrastructure

The integration of AI, advanced analytics, and automation represents the most significant shift in how operating partners approach value creation. However, the technology itself is merely the vehicle—the strategic insight lies in deploying these tools to unlock growth rather than simply reduce costs.

Best-in-class implementations begin with identifying specific growth bottlenecks where technology can create disproportionate impact. For manufacturing portfolio companies, this might mean deploying predictive analytics to reduce order-to-delivery cycles, directly enabling market share gains. For B2B services firms, conversational AI and automated workflows can dramatically increase customer touch points and wallet share without proportional headcount expansion.

The critical success factor is sequencing and change management. Operating partners who successfully drive technology adoption follow a consistent pattern: they start with pilot programs in high-visibility areas where ROI can be demonstrated within 90 days, secure early wins that build organizational momentum, and then scale systematically across the enterprise. One industrial services portfolio company implemented this approach with AI-powered customer intelligence tools, beginning with a single sales region. When that pilot generated 25% higher conversion rates within a quarter, resistance evaporated and enterprise-wide adoption accelerated rapidly.

The Customer-Centric Mandate

Perhaps the most profound evolution in modern value creation is the elevation of customer experience from a marketing consideration to a strategic imperative. Operating partners are increasingly recognizing that customer lifetime value and retention economics are the ultimate determinants of exit multiples in an environment where strategic buyers and public markets heavily discount companies with high churn or weak unit economics.

This has led to wholesale rethinking of how portfolio companies allocate resources. Customer success teams—once viewed as cost centers—are now investment priorities. Product development cycles are being restructured around continuous customer feedback loops rather than annual roadmaps. Pricing strategies are shifting from static models to value-based frameworks that align with customer outcomes.

The tangible results are compelling. Portfolio companies that systematically invest in customer-centric infrastructure during the hold period are achieving net revenue retention rates 15-20 percentage points higher than peers, translating directly into multiple expansion at exit. For operating partners, this represents a fundamental reframing: every dollar invested in customer experience and growth enablement generates compounding returns throughout the holding period and crystallizes in valuation at exit.

Implications for Portfolio Leadership

For C-level executives at portfolio companies, this evolution requires a mental model shift. Success is no longer measured primarily by how efficiently you can run existing operations, but by how effectively you can build scalable growth engines while maintaining operational discipline. The modern portfolio CEO must be equally fluent in customer acquisition economics, technology integration, and change management as they are in financial metrics and operational KPIs.

Private capital leaders and operating partners are at a pivotal moment: the tools to accelerate growth, drive digital transformation, and enhance customer-centric strategies are more accessible than ever, but their effective deployment requires disciplined oversight. As portfolio companies navigate these opportunities, operating partners must focus not only on identifying high-value initiatives but also on integrating them thoughtfully across the organization.

Successful integration hinges on balancing technology adoption with cultural alignment and actionable KPIs. AI, automation, and advanced analytics are powerful accelerants, but their impact is amplified when tied to strategic growth objectives and supported by structured change management. For portfolio executives, this means embedding these initiatives into daily operations, incentivizing adoption, and continuously monitoring outcomes to ensure sustained performance improvements.

For value creation professionals, the shift from cost-centric frameworks to growth-oriented strategies represents both a challenge and an opportunity. By combining operational expertise with data-driven insights and customer-focused initiatives, firms can unlock new sources of value, strengthen portfolio resilience, and position companies for long-term success in competitive markets.

Opening & Closing Remarks from Erik Boender, Vice President & COO, Private Capital Global (a Sparc Group company)

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