Illiquid Insights
At first glance, private equity ended 2025 on strong footing.
PE deal value surged amid an M&A rebound, delivering the second highest annual total on record.
But beneath the surface, the recovery was uneven.
A Tale of Two Markets
In recent years, private equity’s biggest challenge has been selling companies.
Muted deal activity left a growing backlog of portfolio companies trapped beyond the typical five-year holding period.
The average PE holding period has increased since 2022.
In 2025, the exit backlog finally began to ease.
US private equity exit volume nearly doubled year-over-year, reaching the highest level since 2021.
But the rebound wasn’t a broad-based recovery:
While total exits surged, the rebound was driven by $1B+ megadeals.
Sub-$1B exits actually declined slightly during the year.
The Year of Megadeals
The tilt towards large-cap activity has been driven by three main factors:
Fundraising: Capital is consolidating to larger funds, which target large-cap deals
Corporate Buyers: Public companies are taking advantage of the favorable regulatory backdrop to pursue transformative acquisitions
Economy: Larger businesses offer diversification, scale, and pricing power, making them attractive amid economic and trade uncertainty
The imbalance has created a K-shaped recovery.
The upper market is reopening. The middle market remains frozen.
A Narrow Recovery
The rebound shows that liquidity is starting to improve, but only at the top of the market.
For LPs, this is reflected in fundraising patterns. Investors are increasingly writing “safer” checks to the largest funds.
For PE funds, band-aid fixes like continuation vehicles and dividend loans are increasingly common.
Until sub-$1B exits reopen, private equity’s liquidity problem remains unresolved for much of the market.
Private equity hasn’t recovered; it’s bifurcated.
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