Private markets suffer ‘reality check’ as fundraising dries up
Private markets fundraising fell to a decade low across Europe in 2025, after a slowdown in dealmaking and stuttering performance led major buyout shops to struggle to return cash to investors.
According to a fresh analysis of the sector, a dearth of new mega fund raises and “persistent liquidity constraints” across the industry led fundraising for alternative fund managers to plummet some 40 per cent year on year.
The total amount raised by private markets funds fell below €100bn (£86.5bn) for the first time since 2018, in a sign that the era of bumper inflows enjoyed by the industry over the past decade is coming to an end.
Fundraising in the US also slowed over 2025, dropping 17 per cent.
Private markets – the combined term used to describe the rapidly growing private equity, venture capital and private credit industries – have grown rapidly in recent years, attracting record amounts of cash from investors and generating bumper returns. Funds in the sector tend to operate in five to eight-year cycles, raising cash which they then invest in several unlisted companies. After the cycle, funds are then meant to sell their stakes, returning cash to investors.
Private markets struggle to return investor cash
The long period of ultra-low interest rates between 2010 and 2022 led to a frenzy of dealmaking that allowed the industry to boast unprecedented gains and lure in record cash from investors, known as LPs or limited partnerships. But tightening monetary conditions – brought about largely through central banks raising interest rates – and a succession of macroeconomic shocks mean flagship funds are struggling to extricate themselves from their holdings.
Recently, buyout giant TDR was forced to sell its stake in the David Lloyd to itself via a process known as a ‘continuation vehicle’ after struggling to attract a buyer for the gym chain.
With investor cash still tied up in old funds, this is having a knock-on effect for fundraising this year, Morningstar’s analysis showed. In 2025, the largest fund closed was below €5bn compared with 2024 when approximately 50 per cent of capital raised came from funds larger than €5bn.
“2025 was a reality check for private markets,” said Johann Scholtz, a senior equity analyst at Morningstar. “Returns on European private capital funds are tracking at half of their longer-term averages, largely due to persistent liquidity constraints that limited exits and cash distributions.
“That pressure has closed the valuation gap with traditional asset managers and reset expectations. While challenges remain in the near term, we see valuations for private managers becoming more compelling into 2026.”
The analysis also showed bumper performance achieved by much of the industry was starting to slow as well. Across private markets, annualised returns in Europe were six per cent in the third quarter of 2025, down from highs of 12 per cent enjoyed over the past five years.