Private Equity Industry Faces Significant Challenges and Restructuring
The private equity sector is experiencing a period of significant difficulty, characterized by reduced fundraising success, declining returns, and firms struggling to sell portfolio companies. This situation is leading to what some industry observers term the "age of the PE zombie," as many mid-level firms navigate these challenging conditions.
Vestar Capital's Strategic Shift
New York City-based Vestar Capital provides a case study of these trends. The firm recently abandoned plans for its eighth private equity fund, opting instead to focus on enhancing its current portfolio of 12 companies.
Vestar Capital Partners VII, launched in 2018 with $1.1 billion, has reported an internal rate of return (IRR) of 7.7%. This figure trails the S&P's average return of 14% over the same period.
Vestar Capital Partners VII, launched in 2018 with $1.1 billion, has reported an internal rate of return (IRR) of 7.7%, which trails the S&P's average return of 14% over the same period.
Founded in 1988, Vestar has seen its assets under management decrease from $7 billion 15 years ago to $3.3 billion as of its most recent SEC filing in 2024. The firm has not invested in a new portfolio company since 2023 and announced only one sale in 2025: cracker maker Simple Mills to Flowers Foods Inc. for $795 million.
Industry-Wide Fundraising Difficulties
Across North America and Europe, many private equity firms are facing similar struggles. A Bain & Co. report indicated that while over 18,000 private capital funds sought to raise $3.3 trillion, only about a third of that amount was projected to be raised. More capital is being directed towards credit and infrastructure funds rather than traditional buyout strategies.
Data from Preqin shows that the average fund closing in 2025 took 23 months to fundraise, an increase from 16 months in 2021. In 2025, 1,191 buyout funds collectively raised $661 billion, a decrease from 2,679 funds raising $807 billion in 2021.
High-performing megafunds, such as Thoma Bravo ($24.3 billion), Blackstone ($21.7 billion), and Veritas Capital ($14.4 billion), continue to attract capital, indicating a consolidation trend favoring top performers.
Sunaina Sinha Haldea, global head of private capital advisory at Raymond James, noted that fundraising environments pose existential risks for some funds, as existing investors' support is crucial for attracting new capital.
Declining Returns and Extended Holding Periods
The structure of private equity partnerships typically involves deploying capital within three to five years, followed by three to seven years for selling investments and realizing profits. Investors generally expect returns within approximately ten years. Management fees usually stand at around 2% during the initial investment period, decreasing afterward, with performance fees (carried interest) typically 20% after an 8% hurdle rate.
Recent performance metrics show a decline across the board. Three-year annualized returns through June 2025 for the Cambridge Associates U.S. Private Equity Index were 7.4%, significantly underperforming the MSCI World stock index by 11 percentage points annually. This contrasts with private equity's 10-year annualized returns of 14.7% and 20-year returns of 13.7%.
The average holding period for buyout deals has increased to 6.3 years in 2025, up from approximately 5.1 years in 2020. This extended holding period is partly due to firms opting to retain assets to continue collecting management fees rather than selling without meeting performance hurdles.
Examples of Struggling Firms
Several prominent firms exemplify these challenges:
- Onex Partners: With $23 billion in assets, Onex paused fundraising for its sixth flagship fund in 2023. Its prior flagship fund (2017) raised $7.2 billion, but subsequent funds have shown IRRs between 7% and 13%. Onex did raise $1.2 billion for an "opportunities fund" with a shorter two-year investment period.
- Madison Dearborn Partners: This Chicago-based firm, which has raised $36 billion across eight funds, is reportedly seeking to raise $3 billion for its ninth fund—its smallest target since 1999. Its eighth fund (2021 vintage) reports a 12% IRR.
- Siris Capital: Closed a $3.5 billion technology buyout fund in 2019 with an 8.3% IRR, compared to the Nasdaq Composite's 16% annual return over the same period. Attempts to raise $4 billion in 2022 resulted in only $339 million.
- Crestview Partners: Its 2019 fund of $2.4 billion has an 8.4% IRR, while its prior $3.1 billion fund had a 1.4% IRR.
The Importance of Distributed to Paid-In Capital (DPI)
Beyond IRR, the Distributed to Paid-In Capital (DPI) ratio, which measures cash returned to investors divided by capital paid in, is a critical metric. Washington state pension fund documents show Vestar's 2018 fund has a DPI of 0.6x as of June 2025. Madison Dearborn Capital Partners VIII (2020 vintage) reports 0.3x DPI.
Bain & Co.'s midyear report for 2023 indicated that median buyout DPI for 2020 vintage funds in the U.S. and Western Europe was less than 0.2x, trailing historical benchmarks. Distribution yields have decreased to an average of 11% in the last three years from over 25% a decade ago, impacting investor models.
Options for Firms and Future Outlook
Firms facing these difficulties are exploring alternative strategies:
- Continuation Funds: These vehicles allow PE firms to retain ownership of specific investments while providing liquidity to impatient limited partners. In 2024, continuation funds raised $62 billion, and over $40 billion in the first half of 2025, a significant increase from a decade prior.
- Co-investment Opportunities: Firms offer limited partners the chance to invest directly in portfolio companies, reducing fee burdens and fundraising needs for general partners.
- Deal-by-Deal Fundraising: Some firms, like Capvis, are raising money separately for individual deals after unsuccessful broader fundraising efforts.
The prospect of retail money from wealth management channels rescuing struggling firms is considered unlikely.
"The gatekeepers at the wirehouses, registered investment advisors and banks are very quality-motivated and very size-motivated," stated Raymond James' Haldea.
Raymond James' Haldea noted that retail channels are primarily accessible to megafirms like Blackstone and Ares. This indicates continued challenges for hundreds of mid-sized private equity firms.