$3.8 trillion in assets backlog remains difficult to digest, Bain Consulting: Private equity industry’s dilemma has lasted longer than in 2008

The private equity industry is undergoing a prolonged correction that has lasted longer than the 2008 financial crisis. According to Bain & Company’s latest report, the industry has returned less profit to investors for four consecutive years, while holding $3.8 trillion in unsold assets, and fundraising for new funds has become difficult.

In 2025, private equity allocation as a percentage of net asset value remains at 14%, the second-lowest level since the most severe period of the 2008 financial crisis. Although transaction values increased by 44% year-over-year to $904 billion last year, this growth has barely offset the industry’s massive backlog of “dry powder”—funds available for investment that have yet to be deployed.

Rebecca Burack, head of Bain’s global private equity practice, stated in an interview that uncertainty caused by tariffs under Trump suddenly halted deal activity. As of January 2025, deal momentum still appeared “extremely strong.”

Fundraising has declined for four consecutive years, dropping to $395 billion in 2025, a 16% decrease year-over-year. Investors have become more selective, demanding net internal rates of return (IRR) exceeding 20%, forcing asset managers to develop clear value creation plans before acquiring companies.

Returns Near 16-Year Low

Since interest rates began rising in 2022, slowing deal activity has significantly reduced the profits private equity firms return to investors. This, in turn, has weakened their ability to raise new capital. According to Bain’s report, despite increased allocations to infrastructure and secondary funds, overall fundraising continues to decline.

Private equity investors such as pension funds and endowments now require net IRRs of over 20% to commit capital. Burack noted that in the past, firms only needed to maintain an EBITDA growth rate of about 5% annually before exiting investments.

“Considering current interest rates and valuation multiples at entry and exit, you need about 12% annual growth over five years to achieve the same returns,” she said. “12% is the new 5%.”

High-Quality Assets Sold Out, Holding Periods Extended

Bain’s report indicates that private equity firms have sold “jewel” assets, but assets with less certain prospects are difficult to offload. Currently, global private equity firms hold approximately 32,000 portfolio companies, with the average holding period extending from 5-6 years in 2021 to about 7 years now.

Total deal volume in 2025 declined by 6% to 3,018 transactions. Although large deals like Electronic Arts’ $56.6 billion privatization boosted total transaction value, they have limited impact on digesting the industry’s backlog of $3.8 trillion in unsold assets.

“Once a company’s holding period exceeds five or six years, the IRR doesn’t look as attractive,” Burack said. As holding periods lengthen, the pressure on investment returns increases further.

Despite the challenges, Burack believes that private equity remains a strong overall investment option capable of offering diversification that public markets no longer provide. “It’s just a bit stuck right now,” she added.

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