The year 2024 was anything but straightforward for global private equity (PE). On the surface, conditions appeared challenging—fundraising fell for the third consecutive year (down 24% year-over-year for traditional closed-end funds), returns were muted relative to public markets, and macroeconomic uncertainty persisted. However, as McKinsey's "Global Private Markets Report 2025" reveals, the picture is far more nuanced.
Signs of Recovery Beneath the Surface
After two years of stagnation, private equity showed signs of renewed strength. Distributions to limited partners (LPs) finally rebounded, exceeding capital contributions for the first time since 2015. This milestone came at a critical moment: in McKinsey's proprietary LP survey, distributions to paid-in capital (DPI) were ranked as the single most important performance metric by LPs—2.5 times more frequently than just three years earlier.
Deal activity also bounced back. The volume and value of large transactions (>$500M) rose noticeably, and sponsor-to-sponsor exits reaccelerated. A more favorable financing environment contributed to this trend: although still elevated relative to historical norms, buyout financing costs declined, and the value of newly issued PE-backed loans nearly doubled.
A Structural Shift in Capital Formation
While traditional AUM (assets under management) metrics showed a slight decline (-1.4% YoY), this does not account for the proliferation of alternative capital structures. GPs are increasingly tapping into co-investments, separately managed accounts (SMAs), and new investor channels—such as high-net-worth individuals—via semi-liquid or open-ended funds. These innovations are reshaping how private equity raises and deploys capital.
To meet growing LP liquidity demands, many GPs have turned to continuation vehicles and are actively using public-to-private (P2P) deals and carve-outs to accelerate deployment. In Europe, where P2P transactions have historically been limited, total deal value surged by 65% year-over-year.
Resilience Amid Uncertainty
The PE industry faced immense pressure in 2022–2023, as global interest rates climbed by more than 500 basis points and inflation and geopolitical instability unsettled markets. Valuations became harder to assess, and dealmakers struggled to justify pricing amid unpredictable earnings. Even investors with dry powder found it difficult to transact in a cautious lending environment.
Nevertheless, the long-term performance of PE continues to stand out. Since 2000, the asset class has outpaced the S&P 500, providing attractive returns for investors who can tolerate lower liquidity.
Challenges That Remain
Not all corners of private markets have recovered equally. Venture capital (VC) continues to lag, with a sharp drop in deal volume and value. Fundraising and deal activity in Asia also trailed North America and Europe, primarily due to a pullback from China.
More broadly, the industry faces a massive exit backlog. Sponsor-owned companies are stuck in portfolios longer than ever, with many assets marked at levels that are now difficult to justify. GP-led secondaries are increasing, but often at markdowns.
Looking forward, managers must also confront emerging structural forces: from trade tensions and political risk to the integration of generative AI. Leading firms are investing in data science capabilities and AI-enabled value creation strategies—not just to stay ahead, but to redefine their competitive edge.
Conclusion
The fog over private equity is beginning to lift—but clarity reveals new terrain, not a return to the past. The asset class is evolving in form, in strategy, and in who it serves. In this transition, adaptability is becoming just as important as capital.
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Source: McKinsey & Company, Global Private Markets Review 2025