Private equity’s fundraising crunch: investors call time on the boom

Private equity firms are dangling incentives that would have been unthinkable a few years ago. Management fee cuts, rebates on deal charges, even caps on travel expenses are now on the table. Yet despite this generosity, fundraising has slumped to a seven-year low.

According to the Financial Times, firms raised just $592bn in the 12 months to June, almost a third down from the record levels of 2021. Behind the numbers lies a shift in the balance of power between fund managers and their investors.

The liquidity drought

The real problem is exits. Private equity funds need to sell old assets to free up cash for investors, who then recycle that money into new funds. But with higher interest rates and sluggish deal markets, firms have been unable to offload ageing holdings.

Last year, they returned only 11% of assets to investors — the lowest level since 2009. For limited partners, that means capital is trapped in funds that should have been winding down. The result is growing frustration and, increasingly, refusal to commit new money.

Discounts lose their shine

To counter this resistance, managers have launched what one adviser calls a “smorgasbord” of discounts. Bain & Co estimates that net management fees are now about half what they were before the financial crisis. Transaction fee rebates and volume-based deals have become standard.

Yet even generous terms cannot mask the deeper problem: too many funds chasing too little capital. Bain counts around 1,500 buyout vehicles currently in the market, aiming to raise nearly $500bn. In Europe, several of the largest names — Advent, Permira, Bridgepoint, BC Partners, Inflexion, Astorg — are all on the road at once.

Crowded field, cautious investors

The oversupply has left investors with unprecedented choice. Many are taking advantage of the shift to scrutinise managers more closely. A survey by Campbell Lutyens found a third of institutions slowing their commitments, with some stopping altogether.

The political backdrop has not helped. US tariffs under President Trump dented cross-border activity earlier this year, while hopes of a post-election rebound have yet to materialise. In Europe, crowded fundraising windows have only added to the strain.

Investors hold the stronger hand

For years, investors complained about “take it or leave it” terms. Now the tables have turned. Managers are having to justify themselves not only on past performance but also on whether they are “fit for the future,” as one adviser put it. That is a higher bar than simply riding a tide of cheap money and leverage.

This shift is significant. If managers keep conceding ground on fees, the industry’s economics will change. Smaller and newer firms will struggle most, and consolidation seems inevitable. The “rule book for fundraising,” in the words of Campbell Lutyens, is being rewritten.

What the private equity fundraising crisis means

Private equity has long sold itself on exclusivity and high returns. But the fundraising crunch shows those claims are no longer enough. Investors want liquidity, lower costs, and more transparency — and they now have the leverage to demand them.

For observers, this is a reminder that private markets are not immune to cycles. As we noted in a recent piece on private equity in US retirement plans, governments are still keen to open the sector to retail investors. Yet the timing could hardly be worse: institutions are stepping back just as policymakers push ordinary savers towards the asset class.

And as another article on the “alternative fund graveyard” showed, investor enthusiasm can evaporate quickly when promises fail to materialise.

The story now unfolding is not just one of a temporary slump. It is about bargaining power tilting back towards the people who provide the capital. For an industry built on confidence, that may be the hardest adjustment of all.

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