Illiquid Insights
Private equity's pitch is simple: lock your money up for a decade, and earn returns that crush the S&P 500.
This trade worked when leverage was cheap, multiples were expanding and liquidity was abundant.
But since 2022, rate hikes and global volatility have broken that formula.
Lagging Performance
In recent years, private equity has underperformed the stock market.
This is a sharp break from prior decades, when PE consistently beat out public equities.
The recent underperformance reflects the new reality of higher interest rates:
Stagnant Valuations: Years of reliable multiple expansion have stalled
Increased Borrowing Costs: Higher rates have increased LBO financing costs, compressing equity returns
Cash Flow Pressure: Higher debt service and economic volatility have weighed on portfolio company earnings
Frozen Exits: Muted M&A and IPO activity have lengthened investment periods and delayed LP distributions
The End of Easy Money
This new environment pushes private equity into an uncomfortable new phase.
The 20%+ returns of the last decade, powered by cheap debt and growing multiples, are gone. Excess returns must come from fundamentals: revenue growth, margin expansion and operational improvement.
As the easy returns disappear, investors are becoming far more selective with new commitments.
2025 marked the weakest fundraising for private equity since Covid. To regain momentum, the industry will need to show it can adapt and deliver returns in the new market environment.
P.S. Check out the 2026 PE Outlook Chartbook below for a look at the trends driving private equity in the year ahead.
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