The private-equity playbook of the last decade is losing its edge. McKinsey’s Global Private Markets Report makes the case that the two traditional engines of return — leverage and multiple expansion — are largely spent. In their place, operational value creation and AI readiness are becoming the primary drivers of performance.
This is a significant shift. For years, cheap debt and rising valuations could turn an adequate acquisition into a strong exit. That environment is gone. Interest rates are higher, credit is tighter and entry multiples are compressed. The margin for error has narrowed.
Alpha must be earned in the business
If returns can no longer be borrowed or assumed from market movement, they must be built inside portfolio companies. That means improving revenue growth, margin, cash conversion and capital efficiency through deliberate operational change. It also means knowing which levers to pull and in what order.
Operational value creation is not new, but its importance has moved from one component of returns to the dominant one. Firms that treat operations as a post-deal support function will underperform those that embed operating expertise from due diligence onwards.
AI readiness as a value driver
McKinsey specifically flags AI readiness as a source of differentiation. This does not mean every portfolio company needs an AI strategy slide. It means understanding where AI can improve customer economics, automate core processes, sharpen pricing or accelerate product development — and having the data, talent and governance to execute.
AI readiness also affects exit positioning. Buyers increasingly ask not whether a company uses AI, but whether its data and workflows are structured in a way that lets AI scale. Companies that have done this work command a premium. Those that have not face diligence discounting.
Implications for mid-market firms
You do not need to be a buyout target for this logic to apply. Any business facing pressure to grow efficiently should assume that capital is no longer cheap and that operational discipline is the main source of value. Fractional operating expertise, technology leadership and AI strategy are all tools that let smaller firms compete on the same terms.
The new rule is simple: alpha must be made, not borrowed.
This also affects how firms think about talent. Operating partners, fractional executives and specialist advisers are becoming part of the core investment thesis rather than peripheral support. The ability to attract and deploy this expertise quickly is itself a source of competitive advantage.