Private Equity, Saddled With Investments It Can’t Sell, Loses Its Luster

As funds deliver mediocre returns and sheds investors, the industry is struggling to unload 31,000 investments, an increase over this time last year.

Heading into 2025, private equity executives were predicting a new heyday.

After several years of high interest rates and a tough regulatory environment that had chilled deal making, the private equity industry was ready to start selling companies again and booking profits.

“This is one of the best business environments we’ve seen in a long time,” Harvey Schwartz, chief executive of Carlyle, one of the world’s largest private equity firms, said at a conference on Dec. 10, 2024. He predicted that 2025 would be a great year for deals.

While deal making did pick up toward the end of 2025, it was far from enough to solve private equity’s biggest problems: Many firms have been producing lackluster returns that lag the stock market; firms are struggling to raise money from investors; and they are saddled with a record number of companies they bought years ago, but have been reluctant to sell, fearing they won’t get the returns they promised investors.

With more than $7 trillion in investors’ money, private equity firms make money by buying companies with inexpensive debt and selling them for a profit. Typically, their investors are pension funds, endowments and other big institutions willing to tie up large sums for years in exchange for outsized returns that beat the stock market. The industry usually distributes returns to its investors by selling companies or taking them public.

Even with interest rates falling and the number of initial public offerings increasing in recent months, it has not made a dent in the industry’s backlog of least 31,000 companies valued at $3.7 trillion, according to research from Bain & Company. That amount exceeds last year’s record of 29,000 companies valued at $3.6 trillion.

Many recent attempts by private equity firms to sell companies or take them public have stalled.

The private equity firm Thoma Bravo has failed repeatedly over the past several years to sell two companies it owns for an acceptable price. Thoma Bravo bought J.D. Power, the consumer analytics company, and ConnectWise, a software company, in 2019 and hasn’t found a buyer for either. This year, in light of the tough market, the private equity firm did not attempt another sale, according to two people briefed on the matter.

Roark Capital, the private equity owner of Dunkin’, Arby’s, Jimmy John’s and other fast food chains, has been preparing a public offering for the restaurants’ parent company since 2024, but Roark still hasn’t moved forward with the plans, one person familiar with the matter said.

The sluggish deal activity has led to the once unimaginable: For the past several years, private equity’s annual returns have been lower than the S&P 500’s.

Between 2022 and Sept. 30, 2025, U.S. private-equity firms have generated annualized returns of 5.8 percent, including investors’ fees. The S&P 500 generated 11.6 percent annualized returns over that same time period, according to the most recently available data from MSCI, a research firm.

According to calculations from Steven Kaplan, a finance professor at the University of Chicago Booth School of Business, the average fund raised by a private equity firm between 1993 and 2019 beat the stock market, often by a wide margin, every year, except during the global financial meltdown of 2008.

“It worked for a long time,” Mr. Kaplan said.

The problems started when the Federal Reserve, in response to high inflation, raised interest rates significantly in 2022.

The high rates made it more expensive to buy companies, putting a damper on deal activity and dissuading a crucial pool of buyers: Over the past decade, roughly one-third of private equity sales of companies have been to other private equity firms, according to Dealogic data.

The industry has had little incentive to sell in the recent conditions because firms would be forced to mark down the value of their investments, Sunaina Sinha Haldea, the global head of private capital advisory at Raymond James, said in an interview.

“There are so many companies that are stuck,” she said.

Investors are stuck, too, because the lack of deals has meant that their money remains tied up longer than they expected. For the past several years, according to PitchBook, distributions from four-year-old private-equity firms have been at their lowest levels in more than a decade.

And until the companies are actually sold or taken public, a private equity firm’s returns are only estimates of how their companies should be valued. Some investors are growing concerned that they are being left in the dark about the true value of their investments with these firms.

Scott Nuttall, a KKR co-chief executive, said at an investor conference earlier this month that many of the biggest pension firms and other investors are “firing” some private equity firms “and concentrating more of their capital” with firms that are performing well. Mr. Nuttall said KKR was having “a record fund-raising year.”

Yale University’s endowment and New York City’s public worker pensions recently sold their stakes in some private equity funds at discounted prices to get cash back. The investment bank Evercore Partners expects more than $100 billion of these sales in 2025, up from $53 billion in 2019.

In 2022, there were 1,742 new funds created to focus specifically on buying and selling companies, more than triple the number of such funds that were created a decade earlier.

With poor returns and less cash going back to investors, it’s been tough for private-equity firms to raise more money to create new funds.

This year, through Sept. 30, private-equity firms have raised $320 billion in new investments, down from about $650 billion in 2023. This year is on pace to be one of the lowest years for fund-raising in a decade, according to PitchBook data.

The dark joke circling around the industry is that many private-equity firms have already raised their last fund but don’t know it yet.

Amid these fund-raising struggles, some people in the industry say private equity firms are likely to consolidate.

“There will be fewer firms,” said Marco Masotti, a partner at the law firm Paul Weiss who specializes in private equity. But he said it would take a while to see that play out. “Private equity firms don’t die. They wither over time.”

For many private-equity owned companies that have braved the I.P.O. market this year, returns have been weak.

Thoma Bravo took the software company SailPoint public in February, and its stock is still trading below its listing price. In July, Advent took public NIQ Global Intelligence, the analytics arm of what had been Nielsen data. NIQ’s stock is down about 20 percent since then.

In August 2024, the chief executive of the fitness software company Mindbody, which Vista Equity bought in 2019, said the company would go through an I.P.O. in the next 12 to 18 months. But it likely won’t hew to that stock-listing timeline, according to a person familiar with the deal.

Bankers and lawyers in the private equity industry say they have reason for optimism again.

I.P.O.s accelerated this year compared with the previous two years, raising $170.6 billion worth of proceeds for investors, according to Dealogic. But that amount is still down sharply from the $606.4 billion raised by offerings in 2021.

Mr. Schwartz of Carlyle, who began the year on a positive note, said there had been recent signs that his optimism was warranted. In a statement, he called the recent pickup in I.P.O. activity “an encouraging signal for market sentiment as we head into 2026.”

Last week, the private equity firms Blackstone and Carlyle took public Medline, a medical-device distributor they own alongside other firms.

The firms bought the company in 2021 for roughly $30 billion, and the I.P.O. valued the highly profitable company at more than $50 billion.

Over its first three days of trading, Medline’s stock price rose more than 40 percent above its I.P.O. price. Private equity executives and bankers say they are hopeful that this public offering is a good sign for the thousands of other companies still waiting to be sold.

Related Content