The state of private equity: Q1’s bright hopes are fading

Private equity started Q1 2025 riding the wave of 2024’s rebound in deal and exit activity, according to the PitchBook US PE Breakdown, but the recent uncertainty about global trade and market valuation has functioned like a fly in the ointment. Even before the tariff rollercoaster began in earnest, consumer and business loan delinquencies were rising and the threatened $1 trillion in federal spending cuts suggested a slowdown ahead.

While Q1’s exit and deal activity looked strong even though fundraising slumped, the impact of tariffs and market uncertainty, along with the possibility of further retrenchment by LPs, is dimming the outlook for Q2, especially for the all-important rebound in exits.

Fundraising for Q1 2025 continued the slump that started in 2024. Activity for both numbers and value of closed funds is down–if the current trend holds, 2025 will end up with slightly less than 320 closed funds, which would be the lowest number in a decade, while annualizing the current value would make the lowest total since 2018.

Buyout funds continued to account for the majority of capital, at 57%. Growth equity doubled its proportion to 33% thanks to PSG’s massive $6 billion vehicle. The PSG fund was one of three megafunds that closed in Q1 and, in total, made up 38% of the fundraising total. Blackstone had the two largest fund closes of the quarter.

Surprisingly, the median time to close a fund has dropped to 11.7 months, the lowest level since 2022. PitchBook suggests that 2024’s increased exit activity and thus distributions to LPs may spark enthusiasm, but whether it will persist in the new climate is uncertain.

PE exit count roared out of the gate for 2025. Q1 totaled 402 exits and a total of $187 billion in value. If the trend persists, the year would wrap up in second place to 2021’s astounding performance, with 1,608 transactions generating $748 billion. Value in Q1 is skewed, though, by Venture Global LNG’s IPO, which boosted the total by $59 billion. Removing this deal drops the exit value to $128 billion, roughly flat with 2024.

PitchBook noted that only the highest-value assets seem to be up for sale since growth in exit value is exceeding growth in exit count. At the current pace, the current backlog of PE portfolio companies will take at least seven years to clear.

PitchBook analysis also showed that 31% of the companies have been held in the portfolios of U.S. PE funds (3,800) for at least five years. Since the median hold time hit a record of 3.5 years in Q1, and the typical PE fund life is seven to ten years, LPs are understandably concerned about exits and distributions.

Recent uncertainty about tariffs, supply chains, and consumer confidence has cast doubt on future exit activity. Continuation vehicles became the standard “life raft” to offer liquidity to LPs while allowing GPs to retain promising deals, but LPs are becoming wary of such transactions, and their number in Q1 lagged from a year ago.

The optimism that greeted the new administration, buoyed by hopes of reduced regulatory restrictions and falling interest rates, faded as deal counts slipped toward the end of the quarter. Q1’s deal count clocked in at 2,263, down 5.5% from Q4 2024 (but up almost 12% from Q1 2024). Deal value rose by double digits both from the last quarter (25%) and the same quarter last year (36%), driven by take-private activity. Sycamore Partner’s $24 billion acquisition of Walgreens Boots accounted for almost 10% of Q1’s total value.

Growth equity deals continued to outperform. Their representation, 24.5% of the total, exceeded the five-year average of 19%, and that class’s deal value followed suit, at 16% of the total versus the five-year average of 12%. Add-ons continued to dominate the number of transactions, making up 75% of all Q1 deals.

PE funds still hold substantial amounts of dry powder–about $1 trillion for standard PE funds and $500 billion in private credit. With reserves like this, PE funds are well-positioned to take advantage of companies and/or sectors disrupted by the current trade and market uncertainty.

Q1 opened ready to continue the deal momentum of 2024 with its double-digit exit and deal growth compared to 2023. The 2025 outlook reports by Bain and McKinsey also anticipated a recovery, but they were released in March. The April market conditions are dampening the expectation that the new administration’s increased business friendliness would boost deal and exit activity and help PE recover.