Data provider PitchBook’s latest report on US private equity kicks off with the headline “PE roars back to life and into another $1 trillion year”. But its analysis focuses instead on anaemic fundraising. Private capital formation was just US$277.9 billion last year, the weakest since 2020.
Deal value of nearly $1.2 trillion should have justified a bumper year as it was just the second time the figure has exceeded $1 trillion.
Exits also looked encouraging, up 90.1% from 2024 to $728.1 billion. Also, exits to other funds were lower than in previous years.
All in all, the logjam in exits that impeded returns to US fund limited partners appears to be clearing.
But all these positives have not brought potential LPs back to the asset class.
According to PitchBook, the exit rebound has not yet been enough to make up for the dearth of liquidity events earlier in the decade. It says this is partly a rollover effect, where the lack of past returns leaves LPs with less to invest into future funds.
Another drag on fundraising is the volume of dry powder, which has reached a record $1.1 trillion.
In these conditions, LPs with less to invest are allocating to established relationships and larger vehicles, according to PitchBook. This partly accounts for the lowest fund formation in the past decade – just 327 new funds last year, less than half the 667 in 2024.
PitchBook predicts that US dry powder of over $1 trillion for the third consecutive year will continue at historically high levels, at least through 2026. The convergence of high deal volumes and low fundraising will only reduce this gradually.
Performance figures also do not look likely to lure US LPs back to the asset class. One-year returns through the end of March 2025 averaged 7.1% for buyout funds and 10% for growth funds, with an overall average of 7.8%.
Private equity has historically justified its institutional asset allocation by diversification as well as straightforward returns. However, the US figures are far below the peaks seen over the past five years.
All in all, signs are that the US private equity industry, the world leader, will continue to endure a period of painful readjustment, except for the biggest players. High investment and exit figures look unlikely to ease this pain.
