Key Takeaways
- • European private market fundraising collapsed to a decade-low in 2025, with the largest fund closed falling below €5 billion, compared to 2024 when approximately half of total capital raised came from funds exceeding €5 billion—a direct result of absent megafund launches.
- • Private equity capital-raising in the US declined 17% year-on-year in 2025, driven by persistent liquidity constraints, muted exit activity, and continued consolidation across the sector.
- • Returns on European private capital funds are tracking at approximately half of their longer-term averages due to liquidity constraints that limited exits and cash distributions to investors, narrowing the historical valuation gap between private markets and traditional asset managers.
- • Fundraising conditions are expected to improve in 2026 as liquidity and investment opportunities begin to recover, with renewed interest in active management strategies signaling investor selectivity despite passive strategies continuing to dominate overall fund flows.
Summary
European private market fundraising experienced a sharp contraction in 2025, reaching its lowest capital-raising level in a decade, according to Morningstar data analyzed through its subsidiary Pitchbook. The primary driver of this decline was the conspicuous absence of megafund launches—a structural shift from 2024, when approximately half of all capital raised came from funds larger than €5 billion. In 2025, the largest fund closed remained below the €5 billion threshold, reflecting a fundamental constraint on institutional capital deployment in the region.
The pressure extended beyond Europe. US private equity capital-raising fell 17% year-on-year in 2025, with Pitchbook attributing the decline to continued consolidation, muted exit activity, and liquidity constraints that have limited cash distributions to investors. These headwinds have made it materially harder for fund managers to secure fresh capital commitments from limited partners, compressing the fundraising pipeline across both regions.
Performance deterioration has compounded structural challenges. Returns on European private capital funds are currently tracking at approximately half of their longer-term historical averages, primarily due to persistent liquidity constraints that have stalled exits and restricted distributions. This underperformance has narrowed the traditional valuation premium that private market firms historically commanded over traditional asset managers, effectively resetting investor expectations and increasing the relative attractiveness of alternative strategies. Morningstar characterized 2025 as "a reality check for private markets," signaling a market repricing after the record fundraising environment of 2024.
However, forward indicators suggest stabilization may be emerging. Morningstar's analysis indicates conditions are expected to improve in 2026 as liquidity conditions normalize and investment opportunities expand. Additionally, sentiment data shows renewed interest in active management strategies, even as passive strategies continue to dominate overall fund flows. This selective investor positioning suggests institutional capital is becoming more discerning, potentially favoring managers with differentiated track records and specialized expertise—a dynamic that could support recovery for higher-conviction private market strategies.
The pressure extended beyond Europe. US private equity capital-raising fell 17% year-on-year in 2025, with Pitchbook attributing the decline to continued consolidation, muted exit activity, and liquidity constraints that have limited cash distributions to investors. These headwinds have made it materially harder for fund managers to secure fresh capital commitments from limited partners, compressing the fundraising pipeline across both regions.
Performance deterioration has compounded structural challenges. Returns on European private capital funds are currently tracking at approximately half of their longer-term historical averages, primarily due to persistent liquidity constraints that have stalled exits and restricted distributions. This underperformance has narrowed the traditional valuation premium that private market firms historically commanded over traditional asset managers, effectively resetting investor expectations and increasing the relative attractiveness of alternative strategies. Morningstar characterized 2025 as "a reality check for private markets," signaling a market repricing after the record fundraising environment of 2024.
However, forward indicators suggest stabilization may be emerging. Morningstar's analysis indicates conditions are expected to improve in 2026 as liquidity conditions normalize and investment opportunities expand. Additionally, sentiment data shows renewed interest in active management strategies, even as passive strategies continue to dominate overall fund flows. This selective investor positioning suggests institutional capital is becoming more discerning, potentially favoring managers with differentiated track records and specialized expertise—a dynamic that could support recovery for higher-conviction private market strategies.
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