Key Takeaways
- • PE returns have fallen into the high teens and in some cases lower, and the sector has underperformed public markets for a third consecutive year, according to McKinsey & Company.
- • Global buyout prices hit a record 11.8 times EBITDA in 2025, with deals over $500 million reaching 18.1 times EBITDA, while about 42 percent of uncalled dry powder is more than two years old.
- • Exit value rose more than 40 percent to $1.2 trillion in 2025 even as exit count fell 15 percent, and liquidity measured by five-year rolling distributions is at its lowest recorded level.
- • DPI as a share of total assets was 6 percent last year versus a 16 percent average a few years ago, and the 2025 secondary market surged 48 percent.
- • Specialist and larger funds are pulling ahead of generalists, with take-privates up 43 percent globally and AI seen as a major factor by 70 percent of firms within a few years.
Summary
McKinsey & Company's Private Capital Practice, in an essay by senior partner Alexander Edlich, argues that private equity's traditional model of cheap debt and multiple expansion no longer reliably delivers returns of 20 percent or more. Over the past few years, PE returns have fallen into the high teens or lower, and the sector has underperformed public equity markets for three consecutive years, though the best funds still outperform broader equities.
The firm describes the shift as a sign of industry maturation rather than a cyclical slowdown. Between 2020 and 2025, the number of new firms entering the sector fell about 18 percent per year globally, and a record 304 firms went inactive last year. Fewer first-time funds were raised than at any point in the past decade, and funds raising less than $500 million now account for just 13 percent of the market.
Headline 2025 activity appeared to recover, with total deal value up 19 percent to $2.6 trillion, but McKinsey says deal count fell for a fourth straight year. Venture capital dropped 10 percent and buyouts fell 5 percent. Exit value rose more than 40 percent to $1.2 trillion while exit count declined 15 percent, which McKinsey interprets as a few large deals masking a broader liquidity problem. More than half of buyout-backed companies are now held for at least four years, and distributions measured over five-year rolling periods are at their lowest recorded level.
McKinsey's survey of about 300 global limited partners found that DPI now ties with MOIC as the most important metric for respondents, yet DPI as a share of total assets was 6 percent last year, down from a 16 percent average a few years earlier. The secondary market grew 48 percent in 2025. Entry pricing is a central concern: global buyout prices reached a record 11.8 times EBITDA, and 18.1 times for deals above $500 million. Leverage fell to 37 percent as debt became more expensive, and the highest prices were paid largely for A-grade companies, while B and C businesses often failed to sell. McKinsey's analysis indicates that for buyouts from 2018 to 2023, the lowest-entry-multiple funds returned 3.4 times MOIC versus 2.7 times for the highest, with a wider gap at the 75th percentile (5.5 times versus 3.6 times).
Successful managers are pursuing complexity, including take-privates, which rose 43 percent globally and 72 percent in North America, and complex carve-outs. Semiliquid structures have doubled since 2023 to over $204 billion. McKinsey concludes that alpha generation now depends on scale, specialization, and AI, with only 6 percent of firms currently seeing high AI impact but 70 percent expecting it to be a major factor in the coming years.
The firm describes the shift as a sign of industry maturation rather than a cyclical slowdown. Between 2020 and 2025, the number of new firms entering the sector fell about 18 percent per year globally, and a record 304 firms went inactive last year. Fewer first-time funds were raised than at any point in the past decade, and funds raising less than $500 million now account for just 13 percent of the market.
Headline 2025 activity appeared to recover, with total deal value up 19 percent to $2.6 trillion, but McKinsey says deal count fell for a fourth straight year. Venture capital dropped 10 percent and buyouts fell 5 percent. Exit value rose more than 40 percent to $1.2 trillion while exit count declined 15 percent, which McKinsey interprets as a few large deals masking a broader liquidity problem. More than half of buyout-backed companies are now held for at least four years, and distributions measured over five-year rolling periods are at their lowest recorded level.
McKinsey's survey of about 300 global limited partners found that DPI now ties with MOIC as the most important metric for respondents, yet DPI as a share of total assets was 6 percent last year, down from a 16 percent average a few years earlier. The secondary market grew 48 percent in 2025. Entry pricing is a central concern: global buyout prices reached a record 11.8 times EBITDA, and 18.1 times for deals above $500 million. Leverage fell to 37 percent as debt became more expensive, and the highest prices were paid largely for A-grade companies, while B and C businesses often failed to sell. McKinsey's analysis indicates that for buyouts from 2018 to 2023, the lowest-entry-multiple funds returned 3.4 times MOIC versus 2.7 times for the highest, with a wider gap at the 75th percentile (5.5 times versus 3.6 times).
Successful managers are pursuing complexity, including take-privates, which rose 43 percent globally and 72 percent in North America, and complex carve-outs. Semiliquid structures have doubled since 2023 to over $204 billion. McKinsey concludes that alpha generation now depends on scale, specialization, and AI, with only 6 percent of firms currently seeing high AI impact but 70 percent expecting it to be a major factor in the coming years.
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