Why 2025’s Private Equity Paradox Matters: Deal Value Jumps as Fundraising Slumps

In 2025 private equity faced a bifurcated landscape: fundraising declined for the third straight year globally, yet deal values surged as pockets of deal-making, especially large transactions and late-stage funding rounds, rebounded. The drop in global PE fundraising to about US$480 billion marked a ~12.7% decline from 2024, with global venture capital also falling well below the US$100 billion threshold for the first time since 2015. Conversely, deal values across PE and VC rose roughly 42–43% year-over-year to ~US$468.5 billion, led by middle market and late-stage deals. This divergence highlights a capital deployment recovery despite LP hesitation in committing fresh capital.

Secondary markets and exit alternatives evolved from niche to central pillars. Institutional investors sold aged fund stakes worth ~$110 billion in 2025—25% more than in 2024—as traditional exit routes were less available. Secondaries and continuation vehicles absorbed much of the stress from portfolios struggling to exit via IPOs or trade sales. Secondary fundraising itself rose to record or near-record levels, indicating strong LP interest in more liquid, exit-oriented private capital exposures.

Dry powder—committed but uncalled capital—while still among the highest ever, receded mildly from its 2023 peak to around US$2.18 trillion globally by early 2025. The decline mirrors fundraising weakness, but the surplus of capital still waiting deployment is driving aggressive pursuit of large, quality deals, particularly in growth, AI, healthcare, infrastructure, and technology sectors. Additionally, add-on acquisitions and sector carve-outs have emerged as creative ways to utilize capital amid constrained financing.

Manager selection and strategy differentiation are increasingly vital. LPs are becoming more selective, favoring established platforms with demonstrable value creation capabilities—especially through operational improvements and technological transformation—over financial engineering alone. Smaller funds and those without clear sector specialism or strong track record are under pressure, with many unlikely to raise future vehicles. Meanwhile, forecasts for 2026 predict moderate growth in deal volume (PE deals expected to grow ~5%) and rising deal values, largely anchored by larger and transformational transactions.

Strategic implications for market participants include:

• For PE firms: sharpen sector focus, invest in operational infrastructure, emphasize differentiation (e.g. AI, tech-enabled services), and adopt flexible exit and capital structures.
• For LPs: re-assess fund manager selection criteria, consider secondary and continuation vehicles for portfolio rebalancing and liquidity, reallocate toward larger managers who are executing better.
• For fundraising intermediaries: assist smaller and mid-market funds in establishing credibility; innovation in fund structuring (niche, bespoke, continuation vehicles) may unlock capital where traditional funds struggle.
• Monitor risks: macro volatility (rates, inflation), regulatory uncertainty, valuation mismatches in early stage/consumer sectors, and geopolitical disruptions, especially in cross-border deals.