The Private Equity Flywheel: Is Momentum Finally Building?
The capital flywheel powering buyout funds hasn’t been running as smoothly in recent years. Bain & Company’s annual report on the sector offers a detailed gaze at the state of the asset class. A recent assessment concluded that winter had firmly set in – and that assessment proved accurate. But are there now signs of green shoots emerging?
Capital Commitments: A Slowdown in Fundraising
Globally, private capital funds raised $1.3 trillion, a substantial figure. However, this represents the fourth consecutive year of contraction in capital raises. Buyout funds, the industry’s largest category, saw fundraisings shrink by 16 percent to $395 billion. While private capital overall receives a 7/10 rating, the buyout segment has been largely stagnant for seven years, earning a 5/10.
Dealmaking: A Bumper Year, But With Caveats
2025 was a strong year for deals, second only to the record-breaking year of 2021. This initially appears as a solid 9/10. However, the report’s authors point out that not all deals were executed by traditional private equity funds. The total was significantly boosted by 13 megadeals worth $10 billion or more, including the $56.6 billion take-private transaction for Electronic Arts (primarily owned by Saudi Arabia’s Public Investment Fund) and the $27.5 billion Air Lease deal (with Sumitomo Corp and SMBC Aviation Capital as majority owners). These entities aren’t typically classified as private equity buyout funds, yet their transactions are included in buyout deal totals.
Considering this, and the fact that undrawn committed capital (dry powder) fell by only $8 billion to $1.3 trillion – much of which has remained undrawn for years – a score of 6/10 seems appropriate for dealmaking.
Improving Firms: A More Challenging Landscape
The Bain study provides limited detail on firm improvement strategies, but highlights the challenging market environment for delivering the returns investors expect. In 2015, a typical buyout fund could double its equity with debt financed at 6-7 percent, and with expanding multiples, only needed 5 percent EBITDA growth to achieve a 2.5x multiple on invested capital over five years. Today, with higher and stagnant multiples, increased debt costs, and reduced lending appetite, approximately twelve percent EBITDA growth is required to achieve the same results.
Exits: A Complex Picture
The total value of exits reached its second-highest level in 2025 at $717 billion, with 1,750 exit transactions. However, these figures must be considered alongside the approximately 32,000 unsold firms valued at $3.8 trillion. Exits are also inflated by the rise of continuation vehicles (now representing close to 8 percent of PE exit values) and increased portfolio company churn between sponsors. Distributions as a share of net asset values have remained at levels reminiscent of the global financial crisis for four consecutive years.
The average holding period for portfolio companies has stubbornly remained above seven years, with almost two-fifths held for over five years. This contrasts with 2019, when the average holding period was just over six years. The authors note that successful exits in 2025 tended to be a fund’s “gem” assets – those with strategic relevance or exceptional quality.
Given these factors, exits receive a score of 3/10, despite the large headline number.
Profitability: Mixed Results
For clients, US buyout funds have lagged public equity returns over the last five and ten years, but remain ahead over the twenty-year period. For managers, profits have been strong, even though fee compression is emerging, with average base buyout fund fees down 20 percent to 1.6 percent of net asset value. Co-investment demands are also increasing, representing a further 25 percent revenue contraction.
Overall Assessment: A Tentative Thaw?
Adding up the scores yields a total of 20/40. While not all cylinders are firing, the situation isn’t dire for investors and managers. The authors point to the pick-up in deals and exits in the second half of 2025 as a potential sign of a thaw, but caution that further observation is needed.
Did you know?
Continuation vehicles now account for close to 8% of PE exit values, artificially inflating exit numbers.
Pro Tip
Focus on EBITDA growth. Achieving 12% growth is now crucial for buyout funds to deliver expected returns, compared to just 5% in 2015.
Frequently Asked Questions
- What is a continuation vehicle? A continuation vehicle allows a private equity fund to extend the life of an investment beyond the typical fund term.
- What is dry powder? Dry powder refers to the uninvested capital that private equity firms have available to make new investments.
- What is EBITDA? EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company’s operating performance.
Further reading:
- Private equity logjam hits record as firms struggle to sell
- The delusion of private equity IRRs
- How’s the PE Winter looking?
- Is private equity actually worth it?
What are your thoughts on the future of private equity? Share your insights in the comments below!
