Private Equity (PE) is having a moment this year, but it’s a complicated one.
Ten years ago, most people outside the industry barely knew what “take-private” meant. Now, buyout funds are behind some of the world’s biggest corporate deals.
Recent data point toward record dealmaking, a boom in the secondary market and a sophisticated use of financing tools.
However, payouts to investors have lagged, which is the main reason for concern on why most investors should remain grounded before buying into the trend.
Why private equity keeps expanding
The answer begins with money. After two years of frozen dealmaking, global private equity transaction value climbed about 14% in 2024, rebounding to one of the strongest levels on record, according to McKinzey.
Nearly half of that growth came from public companies being taken private at prices that looked cheap compared with inflated public valuations.
According to J.P. Morgan, the value of take-private transactions has more than doubled since 2019, from a half-year average of $61 billion to $135 billion between 2020 and 2024. This surge is one of the sharpest changes in ownership in decades, with a growing share of listed companies disappearing from public markets.
Private credit has become the industry’s new engine. Direct lenders financed roughly 77% of buyouts last year, replacing the banks that once dominated the market.
This steady flow of credit has allowed funds to keep buying even when bond markets were volatile. Add-on acquisitions such as small bolt-ons to existing portfolio companies, now make up roughly three-quarters of all buyouts in the US. That strategy keeps activity high without the need for huge, risky megadeals.
Cheap financing isn’t the only driver. Funds have developed new liquidity tools to keep capital moving.
Net asset value loans, which allow managers to borrow against an existing portfolio, have grown rapidly as spreads tightened through mid-2025.
Secondary markets, where investors buy and sell stakes in older funds, hit a record $162 billion in volume last year. These innovations have softened the liquidity bottlenecks that used to define the industry.
What investors are getting, and what they are paying for
Performance has been steady rather than spectacular. Cambridge Associates estimates US private equity funds returned around 8% in 2024, trailing the S&P 500’s rally but maintaining a long-term premium once adjusted for risk.
Over ten years, buyout funds still outperform public markets on a pooled basis, though the spread has narrowed.
However, costs remain stubbornly high. Traditional index target-date funds used in retirement plans charge around 0.08% a year. Private equity vehicles average 1.75% , plus carried interest on profits.
According to calculations, if just 10% of America’s $4 trillion in target-date assets were allocated to private equity, annual fees would jump by about $6.7 billion.
That fee gap is particularly important because in 2021, the US Department of Labor reopened the door for retirement plans to include private equity components.
The 2020 letter permitting such allocations was reaffirmed early this year after a temporary restriction was lifted.
In theory, millions of savers could soon have indirect exposure to private markets for the first time. Whether they benefit depends on what managers deliver after costs.
The new risks no one wants to own
Right now, it feels as if the industry’s growth has outpaced its liquidity. Payouts to limited partners (LPs) such as pensions and endowments, were about 50% below historical norms last year.
Many investors are still waiting for exits from deals struck in the boom years of 2020 and 2021. The result is a $400 billion distribution shortfall that has forced some funds to rely on NAV loans or secondary sales to meet obligations.
These practices help manage cash flow but also blur the line between financing and performance.
Borrowing against portfolio assets can pull forward returns, making funds appear healthier than they are. If markets tighten again, that leverage can turn from a liquidity bridge into a liability.
The US Federal Trade Commission has already begun challenging “roll-up” acquisitions, particularly in healthcare, where private equity firms have bought hundreds of small practices and clinics.
The strategy works until antitrust rules change, leaving buyers stuck with fragmented businesses they can’t easily sell.
At the same time, transparency has gone backward. The SEC’s 2023 rule requiring private fund advisers to provide standardized quarterly statements and audits was struck down in court last year.
Investors must now rely on negotiation rather than regulation to understand what they’re paying for.
So, is private equity really worth it?
Private equity’s defenders argue the model creates real value through operational improvement and active ownership. The best firms do far more than financial engineering. They replace management teams, restructure incentives, and focus on growth that public companies often avoid. For these managers, the illiquidity premium remains justified.
Yet even supporters admit the industry has grown unevenly. Technology, healthcare, and industrials account for more than two-thirds of private equity’s sector exposure, according to Cambridge Associates.
Public markets are already concentrated in those same sectors, meaning that adding private equity exposure often increases risk instead of diversifying it.
The market’s future will depend on how funds handle that concentration and how disciplined they remain in using leverage.
According to the Wall Street Journal, global fundraising slowed to $310 billion through September 2025, down sharply from $661 billion at the 2021 peak. Limited partners are being more selective, rewarding managers with realized cash returns rather than just paper gains.
For investors, the message is clear. The rise of private equity is real, built on innovation in financing and a decade of institutional trust. In fact, BlackRock pegs private markets growing from ~$13T to >$20T by 2030, implying continued capital formation even through cyclical slumps.
But, its future also remains fragile.
So success now rests less on easy credit and more on execution. It rests on whether managers can turn that financial machinery into genuine productivity. And whether LPs are willing to extend their return horizon while bearing more risk than what alternative opportunities might offer.
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