Survival of the biggest: navigating a tough PE fundraising climate

June 2026  |  COVER STORY | PRIVATE EQUITY

Financier Worldwide Magazine

June 2026 Issue

The private equity (PE) industry has faced a multitude of challenges over the past 12 months – a period characterised by acute economic volatility, ongoing geopolitical tensions and heightened global trade disputes.

Key concerns have centred on the ripple effects of tariffs, uncertainty around central bank policy and persistent inflationary pressures, alongside questions of fiscal sustainability. Adding further complexity is the perceived escalation of geopolitical risk stemming from conflict involving the US, Israel and Iran.

Simmons & Simmons, in its ‘Private Equity: The Year Ahead’ analysis, affirms that 2025 proved to be an uneven year for the industry, reflecting the push and pull of competing forces. Early optimism gave way to caution as tariff-related concerns and interest rate uncertainty weighed on sentiment.

By mid-year, conditions began to stabilise and PE activity surged in the third quarter of 2025, with deal value reportedly reaching a record $310bn. That rebound aligned with an improving macroeconomic environment, as inflation moderated across most G20 economies and expectations of rate cuts in 2026 strengthened.

Exit markets gained traction toward the end of 2025 as strategic acquirers and corporate buyers returned. According to Preqin data, PE exit values rose 69 percent year on year in the first half of 2025, while exit counts increased by 18 percent.

Throughout the year, core PE activity remained concentrated in the mid-market, with large-scale buyouts less frequent. Add-on acquisitions and smaller platform transactions persisted, continuation funds grew in popularity as an alternative to traditional exits, and secondary transactions remained in strong demand.

Despite the resurgence in dealmaking and exits, fundraising closed 2025 on a subdued note. Both PE and venture capital (VC) fundraising ended the year at five-year lows.

“Limited partners (LPs) invest in PE all throughout the investment cycle,” says Michael Moore, chief executive of UK Private Capital. “While we have witnessed a lengthening of the PE fundraising process, in absolute terms, global distributions have remained at solid levels. Although fundraising continues to be muted, LPs are clearly supportive, valuing the strong returns and diversification benefits offered by the asset class.”

These dynamics underline the growing complexity of executing the PE business model, an industry that is markedly more sophisticated than it was a decade ago.

PE fundraising in 2025-26

While PE recorded strong gains in deal and exit values during 2025, recovery beneath the megadeal tier was uneven. Fundraising lagged in the face of persistent liquidity constraints, particularly outside the largest transactions.

The downturn in PE fundraising helped create what many analysts described as the most competitive capital-raising environment since the 2008 global financial crisis. According to PitchBook’s ‘Q4 2025 Global Private Market Fundraising Report’, 2025 was the weakest year for fundraising since 2020, with 578 new funds closing and $414.2bn raised, compared with 906 funds and $535.2bn the previous year.

Capital increasingly consolidated at the top of the market. The largest PE firms captured nearly half of all commitments as institutional investors prioritised scale, diversification and platform stability. Smaller and emerging managers faced intensifying challenges, exacerbated by elongated exit cycles, rising dependence on secondaries and greater use of continuation vehicles.

Structural divergence has widened further as large platforms expand through innovative fund structures, including evergreen and hybrid vehicles. As a result, fundraising has become increasingly bifurcated, favouring large, multi-strategy managers.

“The slowdown is best understood in the context of a challenging exit market and a resulting weakness in distributions,” explains Nicolas Moura, senior research analyst for EMEA private capital at PitchBook. “Distributions as a percentage of net asset value hovered around 17 percent in 2025, well below the 10-year average of 26 percent. With realisations subdued, LPs had less capital available for reinvestment, constraining allocations to new funds.”

PitchBook also highlights a pullback in megafunds, defined as vehicles larger than $5bn. Although capital raised by megafunds declined by 43 percent year on year, this did not represent a retreat from established managers. Experienced general partners (GPs) still accounted for 88 percent of total capital raised, according to Mr Moura.

Instead, investor appetite shifted toward mid-market funds, particularly those sized between $1bn and $5bn, which increased their share of total capital raised by 7.2 percent. This trend was especially pronounced in Europe, where the largest fund closed in 2025 raised $4.8bn, a marked contrast to the $20bn-plus megafunds seen in earlier years from firms such as CVC Capital Partners and EQT.

“Megafunds are few in number compared with the overall fund population, and fundraising data can be lumpy,” adds Mr Moura. “If several large funds raise capital in one year, their successors will generally not return to market for several years. One modestly positive development was a shortening of fundraising timelines. After rising for four consecutive years, the average time to close a fund fell to 17 months in 2025.”

KPMG’s ‘Q4 25 Pulse of Private Equity: US and global investment trends’ echoes this assessment, characterising PE fundraising in 2025 as soft and highly concentrated. In the US, PE fundraising fell to a decade low of $278bn as LPs consolidated their manager relationships and favoured large, multi-strategy firms offering diversified exposure across asset classes.

According to KPMG, the top 10 PE groups captured approximately 46 percent of US fundraising in 2025, a share not recorded since 2014. Global players such as Blackstone, KKR, Bain Capital and Advent International each raised more than $10bn, while mid-sized and emerging managers encountered tougher conditions.

A VC perspective

VC fundraising mirrored many of the same pressures in 2025. Global VC capital raised is estimated at $86.7bn as of 30 November 2025, according to Preqin, marking the first time the total has fallen below $100bn since 2015.

Fundraising concentration intensified as roughly 22 percent of global VC commitments flowed to just 10 funds, the highest share since 2012. Those vehicles raised a combined $26.7bn, the lowest aggregate total since 2019 and 35 percent below 2024 levels. Paradoxically, the number of VC funds launched in 2025 reached a record 7598.

“Until liquidity begins to ease the pressure that has built up in LP portfolios, the likelihood of a rebound in global venture fundraising remains low,” suggests Kyle Stanford, director of VC research at PitchBook. “The median time between fund closings for the same firm rose to 2.7 years, a full year longer than in 2022 and the highest level since 2014.”

The LP mindset shift

Beyond cyclical fundraising pressures, 2025 also marked a more structural shift in how LPs approach private capital commitments. Institutional investors increasingly assessed PE relationships through a portfolio construction lens, rather than treating individual fund commitments in isolation. This evolution has reinforced the preference for scale, predictability and repeatability in manager relationships.

Rising portfolio complexity, driven by overlapping vintages, longer holding periods and slower exits, has heightened the importance of cash flow visibility. For many LPs, the denominator effect remained a critical constraint throughout 2025, forcing difficult trade-offs between re-ups and new manager relationships. This has directly disadvantaged first-time and spin-out funds, irrespective of team quality or strategy differentiation.

Risk management discipline has tightened. Investment committees have placed greater scrutiny on concentration limits, sector exposure and operational robustness, including reporting standards, governance frameworks and cyber security controls. As a result, PE managers are increasingly expected to demonstrate institutional-grade infrastructure from the outset, raising the cost and complexity of market entry for emerging firms.

At the same time, LP expectations around transparency and alignment have risen sharply. Fee structures, continuation vehicle economics and conflicts management are now examined in greater detail, reflecting lessons learned from the rapid expansion of private markets over the past decade. Managers that communicate clearly and engage proactively with LP concerns are better positioned to maintain trust during periods of slower distributions.

Importantly, this more cautious stance does not signal a retreat from PE. Rather, it reflects a recalibration of risk tolerance and a renewed focus on resilience. Many LPs continue to view PE as a core allocation but are pacing commitments more deliberately, favouring managers that can demonstrate consistent execution across cycles. For GPs, success in this environment increasingly depends not only on performance, but on credibility, clarity and an ability to operate as long-term partners within increasingly constrained portfolios.

Signs of improvement

After several subdued years, PE fundraising is beginning to show tentative signs of recovery in 2026. With record levels of dry powder available, firms are increasingly focused on capital deployment through differentiated strategies and deeper sector specialisation.

Bain & Company’s ‘Private Equity Outlook 2026: Gaining Traction’ acknowledges the difficulty of recent conditions while providing context. The report notes that buyout funds have raised $1.8 trillion since 2022, underscoring the continued appeal of the asset class.

“It is true that the remarkable run-up in the public markets over the past several years has erased the historical gap in 10-year returns between public and PE, at least in the US and at least for now,” notes Hugh McArthur, a partner at Bain & Company. “But LPs recognise that these gains are likely anomalous and that PE offers the potential for significant outperformance. Top-quartile buyout funds outperform public market averages across all time horizons.”

A similarly constructive view is offered in Cambridge Associates’ ‘2026 Outlook: Private Equity & Venture Capital Views’. “The worst of the distribution drought in PE is behind us,” says Josh Zweig, co-head of North American PE research. “Institutional investors are approaching the market with cautious optimism.”

However, Mr Zweig also notes that recovery remains uneven. Larger, established managers are leading the rebound, while some mid-market and specialist firms are demonstrating resilience through differentiation. “The ‘flight to quality’ trend has left certain middle-market funds under pressure,” he observes.

Differentiate to survive

As investor attention gravitates toward scale, small and emerging PE managers seeking to raise successor funds are increasingly focused on identifying sustainable competitive advantages.

“The PE industry has matured significantly in the 40 years since its inception, which has naturally involved consolidation toward larger platforms,” says Mr Moore. “Despite this, smaller managers continue to play an important role through regional strategies and sector expertise.”

Many such firms offer deep local knowledge and active operational support beyond capital investment. As Mr Moore points out, managers set themselves apart by building specialist expertise in fields such as deep technology or life sciences, where nuanced understanding and close engagement with founders are critical. By pursuing these focused approaches, investors may gain access to opportunities that larger, more broadly focused funds are likely to miss.

Capital formation tools

Secondaries, net asset value loans and continuation vehicles remain among the most debated capital formation tools available to PE managers. These structures are designed to ease liquidity constraints while enabling continued business growth.

“Continuation funds and secondaries reflect a maturing private capital ecosystem,” says Mr Moore. “They offer investors greater flexibility, allowing high-performing assets to remain in PE ownership beyond the traditional fund life, while providing liquidity options for those who wish to exit.”

Competition in the secondaries market remains intense, reinforcing its role as a tool for active portfolio management rather than a mechanism for disguising underperformance. “Its expansion has been driven by genuine investor demand,” adds Mr Moore.

Confidence and momentum

Despite persistent risks, the PE industry is widely viewed as being positioned for long-term growth. Preqin projects that private markets will expand from approximately $13 trillion to over $20 trillion by 2030, highlighting sustained investor confidence.

Improving financing conditions, resilient balance sheets and renewed momentum in large transactions are supporting activity. Strategic buyers are returning, while sponsors are showing greater valuation flexibility, helping create a more balanced transaction environment.

Simmons & Simmons argues that firms need to keep evolving in order to succeed, highlighting that continuation vehicles and secondaries will play an ongoing role in easing exit pressures. The firm also suggests that stronger M&A and IPO markets should help drive higher distributions to LPs, ultimately supporting fundraising activity.

However, volatility remains a defining feature. Valuation gaps, geopolitical instability, global economic fragmentation and domestic uncertainty continue to cloud the outlook. A prolonged conflict involving the US, Israel and Iran could have a more severe and lasting impact on global capital formation and fundraising cycles.

Innovation will therefore remain essential. Earnouts, seller rollover equity, structured equity and contingent mechanisms, alongside dual-track processes and continuation vehicles, are expected to play an increasingly important role in navigating uncertainty through 2026 and beyond.

“Private capital has grown substantially over recent decades, and the diversification of structures reflects the size and maturity of the market,” says Mr Moore. “These innovations will persist as the industry evolves to meet the changing demands of investors.”

As markets fragment and capital becomes more selective, advantage will accrue to firms that can read shifting conditions early and act decisively. The ability to structure transactions creatively, support portfolio companies operationally and maintain credibility with investors will increasingly separate durable platforms from transient ones. In this environment, adaptability becomes a defining capability.

For investors and managers alike, the challenge is to balance ambition with discipline. Capital will continue to flow toward private markets, but not indiscriminately. Leading firms will need to combine patience with precision, resisting the pull of complacency during periods of recovery and pressure-testing assumptions when momentum returns. In addition to returns, resilience across market cycles will be key to PE fundraising efforts.

© Financier Worldwide

BY

Fraser Tennant