Signal Note — PE Market Structure

The Holding Tax

Why the Exit Window Didn't Reopen — and Why It Won't

PE Market Structure | Regulatory Friction | Human-Intel-Driven  ·  February 2026

The market explanation for compressed PE exits is cyclical: rates are high, IPO windows are closed, M&A buyers are cautious. All true. None of it is the main story. The main story is that synchronized global regulatory tightening — across antitrust enforcement, national security screening, foreign investment review, and financial services regulation — has added structural friction to PE exits that will persist regardless of rate cycles, regardless of political administration, and regardless of whether the economy improves. KKR, Carlyle, and Apollo earnings calls confirm the rerouting.

The Four Friction Layers

Antitrust timeline expansion. HSR filing requirements now consume an estimated 68–121 hours of in-house counsel time per deal. Second requests have lengthened average deal timelines by 6–18 months. The Welsh Carson settlement established a precedent: the FTC can challenge PE roll-ups it previously approved on a transaction-by-transaction basis.

National security screening. CFIUS review has expanded beyond its statutory mandate — any acquisition involving data, technology infrastructure, or proximity to federal facilities faces screening timelines that structurally compress strategic buyer optionality. FIRRMA embedded this permanently.

European enforcement escalation. The CMA's call-in powers, Towercast doctrine, and FSR/FDI screening have created three independent friction layers on European exits. None existed at the scale or speed of current enforcement five years ago.

Secondaries as parallel infrastructure. KKR, Carlyle, and Apollo have not paused distributions waiting for the IPO window. They have built secondaries and continuation fund infrastructure as permanent parallel exit channels. That's not a workaround. That's the new architecture.

The exit window didn't close. The assumption that exit was primarily through IPO or strategic M&A on a 4–6 year timeline was wrong. The holding tax is the friction cost of that assumption.

Who's Exposed

  • PE sponsors with vintage 2019–2021 portfolios priced on 4–6 year exit assumptions — the friction cost wasn't in the model
  • LPs using traditional DPI timing benchmarks — continuation fund distributions don't appear in conventional vintage-year DPI calculations
  • Portfolio companies in antitrust-sensitive sectors — healthcare, software, financial services — where exit via strategic M&A now carries a regulatory premium

Who Wins

  • Secondaries specialists — Ares, Lexington, Ardian benefit from GP-led transaction volume that now runs through their desks instead of IPO markets
  • Regulatory intelligence boutiques — the friction layer creates demand for intelligence on which exits face which scrutiny, from which jurisdiction, on what timeline
  • PE managers who priced regulatory friction into entry multiples on 2022-2024 vintage deals
The strongest counter: the Trump administration has pulled back on FTC and DOJ antitrust enforcement, so the friction is reversing. True domestically. False globally. The CMA, EU DG Comp, and national security screening under FIRRMA/CFIUS are not subject to U.S. executive discretion. The friction is jurisdictionally distributed. Reversing it in Washington doesn't touch London, Brussels, or Beijing.

Exit Friction Mapping Across Jurisdictions

SGA tracks synchronized global regulatory tightening across antitrust, national security screening, and financial services regulation — and maps it to specific portfolio company exit scenarios. The intelligence question is not whether friction exists. It's which friction layer applies to which asset on what timeline.

satish@sarrattglobal.com

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