7 Private Equity Trends Shaping Fund Returns in 2025 [GP Action Guide]

Private equity bounced back in 2024. Buyout investment value surged 37% year over year to $602 billion. Average deal size hit $849 million globally—the second-highest total in history.

The numbers tell a clear story. Dealmaking value rebounded 25% globally in 2024. For the first time since 2015, sponsors delivered more distributions to LPs than capital contributions, marking the third-highest level on record. Yet fundraising remains challenging, with private capital markets experiencing their lowest fundraising levels across all asset classes since 2016.

Market conditions favor prepared general partners. Thirty percent of LPs plan to increase their private equity allocations in the next 12 months. P2P deals jumped 65% in 2024, while AI investments captured nearly half of global venture deal value at $209 billion. Smart GPs who understand these shifts will capitalize on the opportunities ahead.

Seven critical trends will determine your fund returns in 2025. Each presents both challenges and advantages for firms ready to adapt their strategies. Master these trends, and your portfolio performance will reflect that mastery.

Rebound in Private Equity Deal Activity

_{Image Source: Bain & Company}

Deal activity finally broke free from years of sluggish performance. Q1 2025 built on strong 2024 momentum, with global buyout deal count matching historical trends. Deal value hit its highest mark since Q2 2022, powered by mega-transactions that reminded the market why scale matters.

What it is

The rebound shows up in the numbers that matter. Sycamore Partners' $23.70 billion purchase of Walgreens Boots Alliance and GTCR's $24.25 billion Worldpay deal to Global Payments signal a market ready to move capital.

Key indicators paint a clear picture:

• Strategic buyers drove exit activity higher

• P2P deals reached nearly $250 billion globally in 2024

• Technology dominated with 33% of buyout value and 26% of volume

• US and European refinancing jumped almost 80% to $380 billion in 2024

Private equity deal count rose 17% in the first half versus the prior year. Deal value grew over 40% from 2024, spanning retail, transportation, energy, financial services, and infrastructure.

The reality check? Both deal value and count still trail five-year averages and lag industry scale. Buyout funds hold nearly twice the assets they managed in 2019, yet exit value remains flat.

Why it matters

This rebound addresses urgent capital deployment pressures. GPs sit on $1.20 trillion of buyout dry powder—almost a quarter available for four years or more.

The acceleration tackles three critical issues:

LP liquidity relief: Sponsors' distributions finally exceeded capital contributions for the first time since 2015. LPs now rank distributions as "most critical" 2.5 times more than three years ago.

Portfolio repositioning: Higher transaction volumes create opportunities for strategic moves amid changing market conditions.

Performance pressure: The industry can start closing the gap with public market returns. PE firms hold over 30,000 assets awaiting monetization, with 35% held beyond six years.

Market resilience remains strong despite macro uncertainty. Thirty percent of LPs plan to increase PE allocations over 12 months.

GP action steps

Smart GPs will seize this moment through focused initiatives:

Refresh portfolio company programs. Generative AI now enables productivity gains impossible just quarters ago. Extended exit timelines require updated value-creation plans that convince buyers of future growth.

Partner creatively with LPs. Coinvestment volume increased 30% since pre-pandemic levels, offering direct equity stakes with better control and reduced fees.

Prepare exits systematically. Ninety-three percent of PE professionals see valuation improvements from exit preparation. Forty percent would accept 5-10% haircuts for immediate liquidity on long-held assets.

Prioritize operational gains over financial engineering. Higher rates and longer holds demand operational performance and strategic transformation. Today's IRR targets require twice the enterprise value creation compared to previous cycles.

Strong GPs balance aggressive deployment with disciplined value creation. The market rewards this combination.

Liquidity Pressures and Exit Backlogs

_{Image Source: S&P Global}

Private equity faces a liquidity crisis. Approximately 30,000 assets sit unsold, waiting for monetization, with 35% held longer than six years. This bottleneck represents roughly $3.20 trillion in stranded assets—a burden that weighs heavily on the entire ecosystem.

What it is

General partners extended holding periods while market conditions remained unfavorable. The median holding period for middle-market PE investments hit a record 6.4 years in 2023, far beyond historical norms. Distributions to limited partners collapsed to just 11.2% of funds' net asset values in 2023—the lowest since the Global Financial Crisis and well below the 25% median of the past 25 years.

The numbers paint a stark picture:

• Cash distributions to LPs dropped 49% in 2023 versus 2021 levels

• Distributed to paid-in capital ratios sit at only 0.6x for US and Western European funds raised in 2018, when historical benchmarks suggest 0.8x

• PE exits in early 2025 stayed below 2023 levels by both dollar value and count

Here's the real problem: global buyout assets under management tripled over the past decade, yet distributions as a percentage of NAV fell from 29% (2014-2017) to just 11% today.

Why it matters

Limited partners cannot access their money. They cannot realize returns, rebalance portfolios, or respond to market shifts. More than 60% of LPs prefer conventional exits over alternatives like dividend recapitalizations, even accepting valuations below recent marks.

General partners face their own constraints:

• Managing resources across too many portfolio companies

• Struggling to progress from management fees to carry

• Missing return targets over extended periods

• Confronting fundraising obstacles as LPs await distributions

The fundraising environment reflects this strain. More than 18,000 private capital funds seek $3.30 trillion—approximately $3.00 of demand for every $1.00 of supply. Princeton's Andrew Golden called this the "worst ever environment" for liquidity in private equity.

GP action steps

Smart general partners are finding ways to unlock value while addressing LP concerns:

Embrace secondary market solutions. Private equity secondaries reached record volume of $160 billion last year. GP-led secondaries now represent 13% of global private equity exits, up from just 5% in 2020. Continuation funds offer liquidity to LPs while keeping quality assets under management.

Deploy NAV loans strategically. Net asset value loans have "exploded in recent years" as GPs access capital without calling from LPs. The current $150 billion in NAV facilities could double within two years, though LPs remain wary of financially engineered distributions.

Price for liquidity when necessary. Forty percent of firms will accept 5-10% haircuts against original underwriting for immediate liquidity on long-held assets. Another 24% consider even steeper discounts of 10-20%.

Start exit preparation early. Nearly half of firms begin exit activities 1-2 years ahead of transactions. The payoff is real—93% of private equity professionals report that exit preparations improve asset valuations.

Middle-market deal multiples recovered to 12.9x EV/EBITDA from a bottom of 11.0x in 2023. Conditions are improving for firms ready to act decisively on these persistent liquidity challenges.

Rise of Private Credit and Direct Lending

_{Image Source: Moody's}

Private credit has become the financing engine driving modern private equity. Expanding tenfold since 2009, the market reached nearly $2 trillion by the end of 2023. Projections point to $2.6 trillion by 2029, potentially hitting $3.5 trillion globally by 2028.

What it is

Direct lending now dominates the private credit landscape. Alternative investment funds operate without bank intermediation, with direct lending growing from just 9% to 36% of total private credit assets under management over the last 15 years.

Middle-market companies drive this demand. These borrowers sit in the financing gap—too large for commercial banks, too small for public debt markets, often carrying credit ratings below investment grade. Private credit fills this void with tailored solutions:

• Floating interest rates with minimum income floors

• Stronger GP-LP alignment

• Financial maintenance covenants for early warning signals

• First-lien senior-secured positions

Private credit means lending, not owning. Lenders get repaid first if borrowers face bankruptcy. Most strategies distribute interest income quarterly, with investment lives of three to four years—much shorter than private equity.

Why it matters

Banks retreated. Private credit advanced. Following the Global Financial Crisis, banking regulations pushed banks away from traditional corporate lending. The number of banks fell 53%. Private credit stepped into this financing vacuum.

Private equity sponsors now depend on private credit. Forty-five percent of surveyed PE firms report increased use of private credit financing in buyouts. Direct lending captured as much as 93% share of the leveraged buyout loan market in 2023.

Returns justify the attention. Private credit spreads typically range 200-600 basis points higher than public markets. During seven rising rate periods since 2009, direct lending funds outperformed both high-yield bonds and syndicated loans.

Downside protection seals the appeal. Contractual provisions shield investors in uncertain economic environments. Private debt tops the list of asset classes where investors plan to allocate more capital.

GP action steps

Smart GPs are already adapting their financing strategies:

Diversify beyond traditional sources. With $1 trillion in middle-market loans maturing by 2030, private credit offers compelling alternatives. PE firms increasingly use private credit for acquisition financing (63% globally, 75% in Asia-Pacific) and refinancings.

Deploy NAV financing strategically. Net asset value financing secured against portfolio assets generates cashflow without secondary market transactions. Particularly valuable given current exit slowdowns.

Establish subscription lines. Over a third of PE firms now use subscription lines—loans secured against LP commitments rather than underlying assets. These facilities smooth capital call management while potentially enhancing IRR metrics.

Explore continuation fund structures. As the private credit secondary market develops, GPs can transfer portfolios to new vehicles with secondary buyer participation. This maintains management control while providing liquidity options.

Higher-for-longer interest rates favor private credit's floating rate structure. GPs facing fundraising challenges and seeking portfolio company financing alternatives will find private credit increasingly essential to their strategies.

AI and Tech-Driven Investment Surge

_{Image Source: IEEE Spectrum}

Artificial intelligence has moved beyond the hype cycle. 73% of general partners plan to increase their technology budgets in 2025, up dramatically from 50% just a year ago. This isn't exploratory spending—it's strategic implementation across the investment lifecycle.

What it is

The AI adoption in private equity unfolds across three distinct areas:

General partners deploy AI-driven tools to analyze vast datasets, enhancing decision-making across origination, due diligence, and portfolio management. Machine learning algorithms scan proprietary databases and filter targets based on specific investment criteria during the origination phase.

Automation technologies streamline operational processes. AI synthesizes information from multiple sources during due diligence, providing insights into target companies' strengths and weaknesses. These tools automate repetitive tasks like data entry and reporting, reducing human error while improving efficiency.

Generative AI enables deeper analysis and value creation. By processing unstructured data and identifying patterns, these technologies help GPs assess risks more effectively and forecast performance with greater accuracy.

The investment priorities reflect this evolution—tools for "deal sourcing and relationship tracking," "fundraising and marketing automation," and "data security" now top GP technology agendas.

Why it matters

Predictive analytics delivers measurable results. Over 34% of PE professionals report financial gains within 24 months of implementation.

The benefits span the entire investment cycle:

• Enhanced decision-making: AI-powered tools identify 195 relevant companies in the time a junior analyst evaluates just one

• Operational efficiency: Cut processing costs by up to 70% in origination and diligence phases

• Portfolio optimization: Advanced analytics identify performance drivers and inefficiencies, enabling data-driven adjustments

• Value creation: AI enhances productivity and growth by amplifying employee capabilities during the investment period

Yet a gap exists between intention and execution. GPs named AI-powered decision tools as a key priority, but actual integration of AI features ranked lowest among desired tech functionalities—suggesting a readiness gap. The firms embracing AI witness substantial results with potential to rewrite industry standards. Vista Equity Partners believes AI's impact on software companies will elevate the Rule of 40 benchmark to 50% or even 60%.

GP action steps

Smart general partners focus on practical implementation:

Target tangible use cases rather than conceptual exploration. The most successful firms identify where AI delivers meaningful results and build organizational support for adoption. Technology succeeds when it advances team productivity and investor trust.

Build capabilities and expertise. Leading firms make significant investments in tech capabilities, adding AI talent and assembling experts to help portfolio companies stay current with developments. Consider establishing a center of excellence like Apollo Global Management to accelerate AI adoption across your portfolio.

Align AI with strategic priorities. Challenge portfolio company management teams to identify top business priorities and determine how AI advances these initiatives. AI serves strategy, not the reverse.

Start with high-impact applications in deal sourcing, due diligence, and value creation. Focus on applying AI to enhance products, boost revenue, and expand margins through operational efficiencies. Begin with areas that create tangible value defined by clear success metrics.

Secondaries and Continuation Vehicles

_{Image Source: CAIS}

Continuation vehicles have become the private equity industry's preferred liquidity solution. Secondary transaction volume reached a record $152 billion in 2024, with GP-led deals generating $72 billion. These numbers reflect more than growth—they signal a fundamental shift in how general partners manage portfolio exits.

What it is

A continuation fund allows general partners to transfer assets from expiring funds into newly established vehicles they also manage. Rather than selling valuable assets to third parties, GPs sell them to themselves through these new structures. The market has evolved dramatically—from less than $1 billion a decade ago to $75 billion in 2024, representing a 44% increase from 2023.

The transaction mechanics are straightforward. Existing limited partners receive three options: cash out their investment, roll their interest into the new fund, or combine both approaches. Most LPs (80-90%) choose immediate liquidity over continued exposure.

Single-asset deals dominate this space, comprising 52% of all continuation vehicles in 2021 and trending toward 70% in early 2022. These transactions typically focus on "trophy assets" with demonstrated growth potential.

Why it matters

Continuation vehicles solve two critical problems simultaneously. They provide immediate liquidity in an illiquid asset class while allowing GPs to retain ownership of high-performing assets beyond traditional fund timelines.

Each stakeholder group benefits differently:

For GPs: Extended time for value creation, reset carry pools, and additional management fees

For selling LPs: Immediate liquidity and opportunity to lock in unrealized gains

For new investors: Access to mature assets with shorter J-curves and concentrated exposure to high-conviction investments

These vehicles have become essential exit alternatives. They accounted for approximately 13% of all sponsor-backed exit volume in 2024, up from just 5% in earlier years.

GP action steps

Smart continuation vehicle execution requires careful attention to alignment and process:

Ensure proper alignment by rolling 100% of your prior investment into the continuation vehicle, ideally comprising at least 10% of total capital. Structure tiered carried interest mechanisms—15% carry over 8% IRR; 20% carry over 15% IRR—to align incentives with performance.

Address conflicts proactively through independent valuation processes and transparent disclosures. Since you sit on both sides of the transaction, establish fair dealing through third-party advisors and competitive bidding.

Start with thorough self-assessment to ensure the transaction aligns with your objectives and addresses LP needs. Consider whether proposed structures might trigger regulatory requirements, such as registering as a Registered Investment Advisor.

Communicate clearly with LPs about the rationale, valuation process, and options available to them. The LP Advisory Committee plays a crucial role in reviewing conflict waivers and ensuring fair treatment.

Fundraising Challenges and LP Shifts

_{Image Source: S&P Global}

Fundraising has become a battle of endurance. Global fundraising dropped to $383.60 billion in H1 2025—a 17% decline from the previous year. The private equity market is experiencing its most muted first half since the COVID-19 pandemic, marking three consecutive years of decline across all asset classes.

What defines today's fundraising reality

The fundraising environment reflects several harsh realities:

• Time kills deals: Median fund closing time stretched to 18.1 months in H1 2024, up from 11.2 months in 2022

• LP skepticism runs deep: Only 7% of LPs view continuation funds as "novel and creative," while 44% see them as "shifting the burden"

• Allocation appetite returns slowly: Forty-five percent of LPs plan to increase PE investments in 2025, up from 31% in 2024

The performance gap stings. Thirty-six percent of LPs report their PE investments fell below benchmarks last year—the highest figure since tracking began in 2018. LPs now wield more negotiating power, demanding stronger key person clauses and better terms.

Why fundraising difficulties matter now

Market dynamics have created a two-tier system. Established managers continue raising capital while emerging managers struggle to gain traction. Continued softness in distributions to paid-in capital (DPI) keeps fundraising volumes depressed.

The math is unforgiving. Approximately $3.00 of fundraising demand exists for every $1.00 of available supply. GPs face their most competitive environment in decades.

How smart GPs adapt

Successful fundraising requires strategic recalibration:

Embrace radical transparency with existing LPs. Proactive reporting and honest challenge explanations build lasting investor confidence.

Make DPI your north star. LPs now rank distributions as the most critical performance metric—2.5 times more than three years ago. Show them the money, consistently.

Hunt beyond traditional channels. Smart GPs are tapping non-institutional investors and high-net-worth individuals through diverse vehicle structures.

Craft your differentiated story. Generic pitches fail in this environment. Articulate your fund's specific competitive advantages with precision.

Ready to separate your fund from the pack? The firms that master these fundraising fundamentals will emerge stronger when market conditions improve.

Geopolitical and Regulatory Headwinds

_{Image Source: NeoForm Business Partners}

Regulatory scrutiny has intensified across global markets. Sixty-two percent of limited partners now identify geopolitical uncertainty as a top-three factor likely to impact returns in 2025. This marks a sharp increase from just 32% a year ago, when it ranked fifth among investor concerns.

What it is

Regulatory complexity spans multiple jurisdictions and topics. The SEC has escalated enforcement actions targeting fee allocation and disclosure practices, implementing Private Fund Adviser Rules in August 2023. Meanwhile, the Department of Justice added corporate crime prosecutors to scrutinize M&A transactions for national security risks.

European markets face their own pressures. The Alternative Investment Fund Managers Directive (AIFMD) and Markets in Financial Instruments Directive II (MiFID II) demand stricter reporting and transparency from PE firms. The EU expanded whistleblower protections, enabling citizens to report merger-related anticompetitive behavior.

Why it matters

Geopolitical tensions redirect capital flows and increase equity costs. Trade protectionism returns with higher tariffs and expanded subsidies. The 20 largest PE fund portfolios show roughly 20% asset exposure to geopolitical and trade risks across cross-border value chains, strategic sectors, and climate regulation.

Three sectors face particular pressure: industrial goods, technology, and energy. Governments restrict critical technology exports, raise tariffs, and subsidize domestic manufacturing.

GP action steps

Smart general partners build robust compliance frameworks addressing core requirements:

• Alternative Investment Fund Managers Directive

• Cybersecurity protocols

• Fee and expense disclosures

• Fiduciary and reporting obligations

Review your fund strategy by mapping portfolio exposure to geopolitical and trade risks. Screen high-risk industries to identify companies requiring immediate attention.

Embed compliance throughout your firm culture. Appoint dedicated compliance officers and ensure senior management visibly champions regulatory adherence.

Your portfolio's future depends on today's decisions

Private equity reached an inflection point in 2025. Market recovery creates opportunities, yet structural shifts require smart adaptation from general partners who want superior returns.

The exit backlog of 30,000 assets presents your clearest test. GPs who solve liquidity pressures through secondaries, continuation funds, or strategic pricing will earn favor with selective LPs. Those who master private credit financing while traditional banks retreat will secure competitive advantages in deal execution.

Operational excellence now determines success. Achieving target IRRs requires twice the enterprise value creation compared to previous cycles. Focus on tangible value creation strategies that measurably improve portfolio company performance. Financial engineering alone won't deliver the returns your LPs expect.

Fundraising remains challenging, though improvement signals emerge as 45% of LPs plan allocation increases. Differentiate through transparent reporting, consistent distributions, and specialized investment approaches. Generic strategies won't secure capital in this environment.

Geopolitical tensions and regulatory scrutiny demand proactive responses. Implement robust compliance programs and assess portfolio vulnerabilities before problems emerge. These risks will only intensify.

The most successful firms historically have emerged stronger from challenging cycles through disciplined innovation and relentless value creation focus. These principles remain valid, though execution requires greater sophistication than before.

Ready to capitalize on these trends? GPs who balance aggressive capital deployment with disciplined value creation will determine whether 2025 delivers opportunity or constraint. The choice—and the returns—are yours to make.

Key Takeaways

Private equity is experiencing a pivotal transformation in 2025, with seven critical trends reshaping how GPs must operate to deliver superior returns in an increasingly complex market environment.

• Deal activity rebounds but requires operational focus: With buyout values up 37% to $602B, success now demands twice the enterprise value creation compared to previous cycles, shifting emphasis from financial engineering to operational excellence.

• Exit backlogs create urgent liquidity pressures: 30,000 assets worth $3.2T await monetization, forcing GPs to explore secondaries, continuation funds, and accept strategic discounts to satisfy LP distribution demands.

• Private credit emerges as essential financing alternative: The $2T market provides crucial deal financing as traditional banks retreat, requiring GPs to diversify beyond conventional lending sources.

• AI adoption accelerates competitive differentiation: 73% of GPs are increasing tech budgets, with early adopters achieving 70% cost reductions in processing and measurable financial gains within 24 months.

• Fundraising challenges demand strategic adaptation: With $3 of demand for every $1 of supply, GPs must prioritize transparency, consistent distributions, and differentiated narratives to secure capital from increasingly selective LPs.

The firms that proactively embrace these trends while maintaining disciplined value creation approaches will emerge stronger from this challenging yet opportunity-rich environment. Success in 2025 requires balancing aggressive capital deployment with sophisticated operational strategies that deliver tangible results for both portfolio companies and limited partners.