Operating Skill Replaces Multiple Expansion as 2027's Main Return Driver

What's New

Operating skill is replacing multiple expansion as the main source of private markets returns. Manulife Investment Management makes this case across six asset classes in its 2027 private markets outlook. Repricing has lowered entry points. It has also removed the tailwind from rising valuations. The firm expects neither cap-rate compression in real estate nor multiple expansion in private equity to carry returns. For allocators, manager selection in 2027 should test operating capability before thematic exposure.

Why It Matters

Managers whose track records rest on rising multiples are on the wrong side of this finding. Exits remain slow, and investors are putting distributions ahead of paper gains. Manulife reports that more than a third of buyout transactions are now seven years or older. The outlook also challenges thematic allocation, which buys the most direct expression of a trend. Manulife argues that data-center operators already trade at full valuations. It sees better entry points in the firms that serve the build-out.

By The Numbers

• 33%: Share of importance that PE deal teams and operating partners gave to operational improvements, the top value creation lever in Simon-Kucher's 2025 study.

• $1.4 trillion: The U.S. funding gap for surface and aviation transportation through 2033, per the American Society of Civil Engineers.

• 500+ megawatts: New New York City battery storage capacity backed by Manulife's preferred equity in NineDot Energy. That equals nearly 5% of the city's market during peak demand.

• 100%+: The rise in almond prices since 2023. Manulife bought a water-secure orchard during the downturn.

Zoom In

Private equity shows the shift most clearly. Vipon Ghai, Manulife's Global Head of Private Equity, puts it plainly: "The era when rising multiples could carry returns is over for the time being."

• The largest firms keep raising mega-funds, so dollars deployed rise even as deal count falls.

• Many lower and middle market managers face a harder fundraising market. That leaves good businesses with fewer competing buyers.

• Manulife favors healthcare services firms that earn fees from industry participants. Their revenue stays outside the reimbursement decisions that squeeze providers.

• Founder sales and corporate carve-outs draw fewer bidders than open auctions, which allows lower entry multiples.

The Wrap

In 2027, returns will come from what managers do after they commit capital. The case is strongest in the middle market, where financing is tight and fewer buyers compete for deals. It holds while rates stay higher for longer and exits stay slow. It weakens if rate cuts bring back multiple expansion. It also weakens if large funds move down market and bid up entry prices. Exit and fundraising data through 2027 will show which way it breaks.