Total private asset fundraising was flat, but this masks a crisis in buyouts, where fundraising fell 16%. The cause is an unprecedented four-year stretch of low distributions to LPs (below 15% of NAV), straining their ability to recommit capital and doubling capital recycling timelines from four to eight years.
While 2025 deal *value* was a near-record $900 billion, this figure is deceptive. The actual number of transactions fell by 6%. A few unprecedentedly large deals, including 13 over $10 billion, masked a broader slowdown in activity for the majority of the market.
To achieve a 20% IRR, PE firms must now generate 12% annual EBITDA growth, up from just 5% a decade ago. The era of cheap debt and guaranteed multiple expansion is over, forcing a fundamental shift towards operational value creation to drive returns.
The PE industry has matured, making it more expensive to generate alpha. Simultaneously, fee-bearing AUM is being eroded by the rise of fee-free co-investments (now 1/3 of capital) and large LPs negotiating fee discounts, creating a two-sided pressure on GP profitability.
While S&P 500 returns rival private equity's, these gains are dangerously concentrated, with just 17 stocks driving 75% of the return in 2025. This makes PE, with its access to a broader set of private companies, an essential allocation for investors seeking to avoid overexposure to a few public market winners.