Private Equity’s Turning Point: Dry Powder, Exit Delays & Fundraising Landscape in 2025

Private equity firms ended 2025 dealing with both progress and deep structural challenges, setting the stage for 2026 to be a year of both opportunity and scrutiny. From the data, a few key trends emerge:

1. Backlog and lengthening hold periods. Despite a jump in deal activity overall, the glut of unsold companies in U.S. PE portfolios has slightly worsened—12,900 as of September 30, 2025, up from the end of 2024—while average hold periods remain near seven years. That’s symptomatic of deals made at peak valuations with debt structures that no longer pencil out in current rate environments. PE firms are resisting exits at lower profitability, which disrupts the traditional buy-fix-sell lifecycle. [1][2]

2. Dry powder running down; exits rising. Undeployed capital has decreased to about $880 billion from $1.3 trillion in December 2024. Meanwhile, exit activity has improved: global PE sales/IPOs rose more than 40% in 2025 through December 22. Noteworthy exits include Medline’s IPO (largest since 2021) and Ampere Computing’s $6.5 billion sale. IPOs from private companies like SpaceX and Anthropic are being eyed. Together, these suggest a thaw in what had been a liquidity freeze. [1][2]

3. Strategy and structure innovation under pressure. With unsold legacy assets weighing down performance, PE firms are leaning more heavily on continuation vehicles and sponsor-to-sponsor deals to manage aging portfolios. At the same time, LPs are demanding tighter fee models for late-stage funds, especially those whose lifespan has stretched to 15 years or more. Negotiation over fee structure and GP commitment is sharpening. [3][1]

4. Key challenges ahead.

• Valuation gaps persist between what sellers believe is fair value (especially for boom-era deals) and what buyers are willing to pay under higher rates and macro uncertainty.
• Macroeconomic headwinds—interest rates, inflation, geo-political risk—still cloud deal financing, especially in leveraged buyouts.
• Fundraising is weaker: traditional commingled fund commitments are down sharply YoY, and many firms must convince LPs they can deliver real value rather than financial engineering. [5][1]

5. Strategic implications for managers and investors.

• Managers who invest in operational transformation in portfolio companies and who can recalibrate business models to cope with inflation and rate pressures will gain competitive advantage.
• LPs will more closely scrutinize GP performance, fee structures, valuation methodologies, and exit paths; alignment of incentives becomes more critical.
• Deal structure innovation (continuation funds, GP-stake sales, secondary transactions) will remain central, as traditional exit routes via IPO or sale to corporates are slowly rebounding but uneven.
• Sector weighting will matter: tech (SaaS, cloud, AI), industrials, and insurance seem to offer better visibility; sectors with weak growth or high debt sensitivity may lag.

Open Questions:

• How far will interest rates fall, and how tightly will macro conditions constrain PE exit multiples?
• Will the IPO market sustain momentum through 2026, or will softness reemerge as valuations demand rises?
• To what degree will regulatory and tax policy shift, especially regarding private asset disclosure, carried interest, and fund-life transparency?
• How will GP-stake transactions reshape power dynamics between GP and LP, especially for middle-tier managers?