- Institutional investors are cooling on private equity as recent risk-adjusted returns lag public markets and liquidity has worsened.
- Fundraising has fallen sharply since 2021, with 2025 volumes roughly half the peak and the number of funds closing down heavily.
- Exit activity remains weak, stretching holding periods to about six years and limiting distributions that LPs need to recommit.
- Capital is concentrating in large, established managers while smaller sponsors struggle and private debt looks comparatively resilient.
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The CEPR article frames a narrative of institutional skepticism toward private equity driven by disappointing risk-adjusted returns, rising concern over overvalued assets and “zombie funds,” and a shrinking margin between PE performance and public equities. That aligns with data from MSCI estimating annualized returns for US private equity between 2022 and Q3 2025 at approximately 5.8%, versus 11.6% for the S&P 500 over the same period.
Global data confirms a sharp decline in fundraising volumes: PE and related private market vehicles raised ~$966 billion in 2023, ~US$680 billion in 2024, and ~US$480 billion in 2025, a drop of 30% from 2023 to 2024, then about 12.7% more to 2025. Fund counts have dropped, particularly among smaller or newer sponsors.
Exit activity has weakened materially. PE exits globally in 2024 were ~$392.5 billion—among the lowest in five years. IPOs became increasingly rare as exit routes; exit delays have extended holding periods to roughly 6.1 years on average. The constrained flow of capital back to limited partners (LPs) has dampened their ability to make new commitments.
In contrast, private debt continues to outperform in a higher interest-rate environment, attracting more stable investor demand. Meanwhile, large buyout funds—especially those run by well-known global sponsors—are still able to raise large funds, while mid-market and smaller managers are struggling.
Strategic implications for institutional investors include reconsidering private equity as a free lunch outperformer, more rigorous due diligence on fund terms, alignment of expectations regarding time to exit, and exploring alternative long-horizon investments or diversified strategies. For fund managers, pressure is mounting to demonstrate cash returns (distributions), control costs, curb valuations, and articulate credible exit pathways. Policy and regulatory risks also loom, particularly around transparency, leverage, and valuation standards.
Open questions remain: To what extent are current valuation models overstated, especially for private assets with opaque mark-ups? Will exit volumes rebound in 2026 and beyond, or are we in a structural shift away from IPOs toward secondaries and continuation funds? How will increasing competition for capital among large versus small managers shape industry consolidation or displacement?
Supporting Notes
- Between 2022 and Q3 2025, US private equity funds had annualized returns of ~5.8%, while the S&P 500 achieved ~11.6% over the same period.
- Global private equity fundraising fell from $966.4 billion in 2023 to $680.0 billion in 2024, then down again to $480.3 billion in 2025—a drop totaling around 50% since the peak in 2021.
- Number of PE funds closing dropped: 1,783 in 2024, a ~40% year-over-year decline; funds under $1 billion have been hardest hit.
- Global private equity exits dropped to ~$392.5 billion in 2024, with average holding periods extended to 6.1 years.
- LPs’ distributions finally exceeded contributions in 2024—first time since 2015; distributions are increasingly considered a primary performance metric by LPs.
- Private debt fundraising fell by 17-22% year over year, but was among the least-declined strategies and posted relatively stronger returns in 2024.
- Large, established managers continue to dominate: top funds raising >$10 billion each, concentration among the top-10 managers captured ~46% of US fundraising in 2025—highest since 2014.
- Smaller and mid-market firms are “unlikely to survive” the fundraising slowdown according to industry experts, with many failing to raise next funds or consolidating.