The first half of 2025 has ushered in a period of significant turbulence and mounting pressure for the private equity industry. Bain & Company’s latest publication, “Leaning Into the Turbulence: Private Equity Midyear Report 2025,” offers critical insights into the forces shaping this evolving PE market landscape. While initial optimism marked the start of the year, subsequent geopolitical shifts and economic headwinds have introduced new complexities, demanding a proactive and agile approach from private equity firms.
Understanding 2025’s PE Market Dynamics
The Bain 2025 Midyear Private Equity Report highlights several key areas of change and challenge for investors and GPs alike:
Dealmaking: From Q1 Optimism to Q2 Slowdown
The year began with considerable momentum, with global buyout deal value in Q1 2025 hitting $189 billion. This figure was approximately double the $95 billion seen in Q1 2024 and marked the highest value since Q2 2022. Deal count also remained broadly in line with 2024 trends. However, this upbeat start rapidly faded hours into the second quarter due to amplified tariff uncertainty. Early signs indicate a slowdown, with deal value in April 2025 24% below the Q1 monthly average and deal count down 22%. This volatility stemmed from fresh uncertainty injected into long-term models, just as investors were regaining confidence.
The Persistent Exit Logjam and Liquidity Crunch
The slowdown in dealmaking is mirrored on the exit side. The most immediate and visible impact was seen in the IPO channel, which essentially shut down early in Q2 2025 as offerings were postponed or canceled amidst the tariff turmoil. Liquidity remains a critical concern, as recent fund-raising vintages consistently lag historical benchmarks for returning capital to limited partners (LPs). For instance, US and Western European funds from 2018 show a distributed to paid-in capital ratio of just over 0.6x, compared to a historical benchmark of about 0.8x. This lack of liquidity impacts both LPs (limiting returns and rebalancing) and GPs (spreading resources thin and impeding fresh fundraising). A recent poll indicated that over 60% of LPs now prefer conventional, full realizations, even if it means accepting a valuation below recent marks. LPs are increasingly turning to the secondaries market to rebalance portfolios or raise cash, but despite strong growth, secondaries account for less than 5% of global PE assets under management and are not mature enough to resolve the broader liquidity needs.
Mounting Fundraising Challenges & Capital Mismatch
Fundraising continues to be a significant hurdle for the private equity industry. Global buyout fund-raising may narrowly avoid a sixth consecutive quarter of decline in Q2 2025. Q1 2025 was the first quarter in a decade where no buyout fund larger than $5 billion closed, highlighting a decline in average fund size and fewer fund closings. While “pockets of strength” exist in private capital fundraising, such as in secondaries and infrastructure, these have not fully offset the weakness observed in buyout funds. There is a substantial $1.2 trillion in buyout dry powder awaiting investment. However, over 18,000 private capital funds are collectively seeking $3.3 trillion in capital, creating an approximate $3 of demand for every $1 of supply. The outlook for buyout fundraising remains challenged, with a recovery in fresh capital inflows likely pushed out to 2026 or beyond.
Geopolitical Shifts: A Reordered World
The report emphasizes that a fundamental reordering of global trade and geopolitics is underway. This means almost all portfolio companies need to rethink their business strategies, as assumptions from the start of the year may now be obsolete. The emergence of new trade tensions, for example, is causing investors to rethink their exposure across asset classes and geographies.
Strategic Imperatives for Private Equity Success
Despite these PE market challenges, Hugh MacArthur, Chairman of Bain & Company’s global Private Equity practice, asserts, “There’s nothing fundamentally broken in the market. Buyers and sellers can still transact – and history shows that strategic buyers with a strong M&A agenda remain active in turbulent times”. Winning firms in this environment will need to:
Proactive Dealmaking in Volatile Times
When the market default is “wait-and-see,” it pays to be a catalyst in dealmaking. This includes recognizing that GPs are increasingly making trade-offs between returns and liquidity. Successful PE players will also excel at rigorous due diligence.
Boosting Portfolio Company Earnings & Value Creation
With valuation multiples unlikely to expand on their own, firms must prioritize enhancing earnings at portfolio companies through cost control and sales acceleration. Leveraging tools like generative AI can unlock productivity measures that were not possible even a few quarters ago. Given lengthening exit timelines, GPs may need to refresh or extend their value creation plans to convince buyers of future growth, with clear evidence of EBITDA growth being crucial.
Dive Deeper into Bain’s PE Insights
The volatility of recent months makes mid-year predictions difficult, but it’s clear the world has changed. As Bain concludes, success in this “less benign environment” means anticipating market opportunities and having a clear view of what to own. With no end to the turbulence in sight, “leaning into it is likely the best option”.
To gain a comprehensive understanding of these critical trends and the strategic imperatives for thriving in today’s private equity landscape, we highly recommend reading the full “Leaning Into the Turbulence: Private Equity Midyear Report 2025.” You can find the report and register for Bain’s Private Equity Midyear Report 2025 Webinar on July 16 for further discussion.
