Time to “Generate Liquidity Creatively” Amid PE Fundraising Slowdown — Evening Brief – 03.17.25
Private equity fundraising took a significant hit in 2024, with investors pulling back and channeling less capital into a shrinking pool of larger funds. Per Bain Capital’s latest Private Equity Outlook report, which pulls data from Dealogic and Preqin, the number of buyout funds that closed successfully dropped to 562—a clear sign of a tougher environment. This decline reflects a broader trend of consolidation and caution, as limited partners (LPs) grapple with liquidity constraints and favor bigger, more established players.
That figure was less than half the 1,153 vehicles that reached final close during the post-pandemic surge of 2021, according to the report. This figure represents the lowest annual total since 2017, when 600 funds closed, highlighting a stark pullback in fundraising momentum. Despite the year-end slump, 2024 kicked off with some promise, as the first quarter alone saw roughly $136 billion raised—a decent pace that evidently didn’t hold.
Had 2024 maintained the $136 billion fundraising pace, it would have come close to matching the $522 billion total in 2023. Instead, momentum fizzled, with each subsequent quarter delivering progressively less closed capital. The year wrapped up at just $404 billion—the smallest haul since the pandemic-disrupted 2020—underscoring a sharp slowdown.
Among the private equity funds that did secure a close in 2024, over a third had been grinding it out on the fundraising trail for more than two years. Meanwhile, roughly a quarter of these funds moved faster, sealing the deal in a year or less —a feat likely tied to their appeal as larger, tested investors.
“The slowdown isn’t surprising,” the report noted. It pointed out that fundraising acts as a lagging indicator, trailing behind industry cash flows. The report traced the domino effect: hefty capital drawdowns fueled a dealmaking frenzy in 2021, but when interest rates soared and transactions stalled, exit activity screeched to a halt. With distributions drying up, limited partners (LPs) tightened their belts, slashing new commitments.
Despite the fundraising dip in 2024, the report highlighted the resilience of the buyout sector over the long haul. Over the past two decades, buyouts have delivered a robust average annual growth rate of 11%, maintaining positive net long-term cash flow.
Bain warned that ongoing sluggishness in exit volume will keep pushing the private equity industry to “generate liquidity creatively.” With traditional exits stalled, general partners (GPs) have leaned into a diverse toolkit of strategies and financial maneuvers. These include returning capital directly to investors without a full exit or dialing back incremental capital calls to avoid deepening the cash flow gap.
The report added that 30% of companies in current buyout portfolios have experienced some form of liquidity event. To navigate the exit drought, the industry has raised a hefty $360 billion through alternative channels like minority interest sales, dividend recapitalizations, secondaries, and net asset value (NAV) loans.
“Still, none of this will be sufficient to alleviate the hangover from the industry’s two-and-a-half-year exit slowdown, the report added. While a modest uptick in activity allowed buyout funds to break even on cash flow in 2024, the broader picture remains strained. The report noted that buyout distributions, as a share of net asset value (NAV), have plummeted to all-time lows—a stark indicator of the exit bottleneck’s toll.