Peak private equity? Sector gets defensive about its returns

BERLIN — Private equity’s biggest annual gathering is called SuperReturn, but its returns haven’t been looking quite so super of late — leading the industry to urge investors to ride out the uncertainty.

At this year’s conference in Berlin, Germany there was a clear acceptance that a previously forecast 2025 boom in M&A and initial public offering activity has not materialized. And that is putting private equity — which ballooned following the Great Financial Crisis as an alternative funding source to risk-averse banks, now rivaling many of them for size — under pressure.

But panels and sideline discussions at the event showed plenty of fighting spirit, with some attendees defending against the narrative that dealmaking is drying up or that the public markets might be a better bet for returns. Many enthused about growth areas ripe for private equity backing, including European defense firms, undervalued mid-caps and Middle Eastern data centers.

The event at the Intercontinental Hotel hosted nearly 6,000 attendees this week, with headline keynotes from Carlyle Group Co-chairman David Rubenstein and Blackstone Vice Chair Thomas Nides. Tennis superstar Serena Williams and U2 frontman Bono were also among the speakers.

“There is no doubt exits have slowed due to headwinds from geopolitical tension and volatility in public markets. As a result, we have seen companies stay private for longer,” said Nalin Patel, lead private capital research analyst at PitchBook. An “exit” refers to when a private equity fund exits its investment in a firm, be it through a sale, IPO or process called a dividend recapitalization.

Pitchbook data for the first three months of 2025 showed exit values in Europe dropped 19% quarter-on-quarter, as exit count fell 25.2%.

The industry is, meanwhile, holding nearly 30,000 unsold companies worth about $3.6 trillion, according to a March report from Bain. That means limited partners (LPs) — investors in funds — can’t realize returns or access cash, while general partners (GPs) — the managers of funds — are spread more thinly across their portfolio companies.

U.S. tariffs were repeatedly cited at SuperReturn as having reduced overall market risk appetite, coming just as the industry had been betting on some respite after being rocked by the Covid-19 pandemic, supply chain disruption and higher interest rates.

Yann Robard, managing partner at alternative asset manager Dawson Partners, told a packed crowd that private markets are going through a cyclical dip, but that “on average and over the long term, our analysis suggests that private equity outperforms public markets.”

Assessing data since the start of 2000, Robard said a $1 investment in a Russell 3000 index would have generated a 6.6 times return versus a 19.9 times return in private equity. He added that the sector has better weathered volatility despite its higher leverage — illustrated by a flood of private capital, which has tripled in the last decade from $5 trillion to $17 trillion.

Private equity’s surge was supported by more than a decade of ultra-low interest rates, with dealmaking hitting a peak in 2021 as low rates met a Covid rebound and fiscal support packages. A core issue hanging over buyout firms now is that many “just paid too much” during that period, said John Romeo, managing partner at management consultancy Oliver Wyman, on the sidelines of the event.

“It may have been for good companies, but they just paid too much, so they’re not going to make the target returns on those, and that’s blocked up the system a little bit. At some point that has to pass,” Romeo told CNBC. “I’m still very bullish on private equity.”

“If I compare how well prepared a private equity firm is in their monthly board meeting with a company, they know the ins and outs of that perfectly, compared to a public market investor who just doesn’t have the same level of information or levers to control.”

Recent years have seen new trends in the private equity world: the rise of continuation vehicles, in which firms essentially dispose of stakes in their companies to new funds they’ve created; Net Asset Value (NAV) lending, where loans are made against a portfolio’s underlying value; and secondaries, in which existing interests or assets are bought from primary private equity investors as a way for LPs to access cash.

“The secondary market is hot, it’s on fire,” said Richard Hope, head of EMEA and global co-head of investments at Hamilton Lane.

While it may have arisen as a way to overcome challenges in the industry, Hope said: “Those investing into the secondary market really like it. It’s short-duration, it gives you nearer-term liquidity, and it actually gives you an enhanced return. Some investors are looking at in a positive way and want to add it to their portfolio.”

There has been a push toward getting retail investors involved in the space — traditionally the preserve of large institutional investors — including via an exchange-traded fund launched by State Street and Apollo Global Management in March.

Family office representatives were also a notable presence on the ground at SuperReturn.

Consolidation has been another consequence of the changing environment, which Rob Lucas, CEO of CVC Capital Partners, expects to continue.

He agreed the market sees stronger and weaker cycles, and was currently in the latter, but stressed that making the right investments during periods of volatility generates the strongest returns.

“What our LPs are looking for from us is more demanding, in returns, governance, compliance, sustainability, AI. All of these areas are hugely intensive and require depth and strength of platforms,” he said during a panel.

“Groups coming together is a natural part of that,” he said, adding that private equity was still a “super strong asset class” with tailwinds supporting it.

One common refrain at SuperReturn in support of the outlook was the huge amount of “dry powder” — liquid assets — still available for many of the biggest names in the industry to deploy, estimated at over $1 trillion.

Despite making the defense case for private equity’s future, SuperReturn attendees agreed that huge uncertainty remained regarding the macro environment, not least with the U.S. trade issue far from resolved. A lot is resting on the expectation that fingers are poised on buttons, ready to set deals in motion as soon as some stability returns.

Oliver Wyman’s Romeo said that private equity has expanded into highly diversified financial institutions but will thrive by focusing on its bread-and-butter roots — finding companies at attractive prices and being laser-focused on improving profitability.

“Firms have never had, really, this much money… The entry price that you go in at really matters, but then you’ve also got to have a real clear plan how you’re going to drive that value creation,” he added.