Private equity run of barren returns worse than in run-up to 2008
Private equity funds returned fewer profits to investors for a record fourth year running in 2025, according to a report from industry juggernaut Bain & Co which warned that fundraising for new funds had become a “slow and difficult slog”.
Distributions as a percentage of net asset value (NAV), which denotes how much private equity funds give back to investors relative to their total assets, failed to breach 15 per cent for the fourth time since 2021 as asset managers struggled to extract themselves from investments struck when interest rates were at record lows.
In its closely watched annual report on the state of private markets, Bain & Co said the amount of cash flowing back to investors – known as limited partners (LPs) – “continues to disappoint”, and had led to a “liquidity crunch” for new fundraising.
Private equity funds have been locked in a years-long battle to keep up with the historic returns the industry was able to hand investors during the pandemic, when ultra-low interest rates and quantitative easing spurred dealmaking to record highs.
But as interest rates ratcheted up alongside a succession of macroeconomic and geopolitical shocks, buyout funds, which generally invest in private companies over a five- to seven-year horizon, have found it increasingly challenging to exit their investments at acceptable prices.
This has in turn made it harder for LPs to reinvest in private equity firms’ new funds, as many of their original investments have not been returned. A separate recent study found fundraising in Europe fell some 40 per cent last year, as investors became increasingly reluctant to stump up fresh cash before earlier investments had been returned to them.
Private equity deals on rise despite stuttering returns
“Looking at buyout funds broadly… closing a new fund in 2025 continued to be a slow and difficult slog,” authors wrote. They also warned funds against becoming over-reliant on so-called continuation vehicles, a solution to the ‘liquidity crunch’ that allows investors to roll into a new fund containing similar investments while the fund returns some cash to investors.
“Many GPs appear to be holding assets for longer in order to buy time for strategies to increase EBITDA (earnings before interest, taxes, depreciation, and amortisation),” they said.
“But that eventually comes at a cost. An analysis of returns from 15 years of buyout vintages (2000–15) shows [the] rate of return starts to stagnate around year seven and declines after that.”
The total value of deals rose some 44 per cent from 2024’s figure, carried higher by bumper merger and acquisition activity sparked in part by Donald Trump’s less interventionist approach to dealmaking.
Authors singled out September’s $56.6bn (£41.5bn) deal for Electronic Arts struck by a consortium of investors led by Saudi Arabia’s Public Investment Fund (PIF) as an example of the rekindled appetite for big ticket deals. The blockbuster float of medical supply giant Medline on New York’s Nasdaq – the biggest initial public offering secured by a private equity company – should help breed confidence among other fund managers.
“The good news is that 2026 is shaping up as promising,” they wrote. “Black swan events have come in flocks over the last few years, making forecasts especially perilous. But barring another jolt to the system, the conditions supporting more deal and exit activity appear to be improving.”