Overview of funds market and fundraising environment

2025 has been a mixed bag of a year for the private funds market. After a strong start to the year, with global private equity deal volumes up by around 45 percent compared to the first quarter of 2024, activity slowed considerably as the year progressed. Uncertainty around tariffs and broader geopolitical volatility weighed on confidence, leading sponsors to delay exits and buyers to take a more cautious approach. Surveys conducted mid-year indicated that three-quarters of general partners expected tariffs to have a moderate negative impact on deployment over the following six months, and this sentiment was reflected in reduced deal flow through the summer and autumn. Low exit volumes and consequently a lack of distributions to LPs with which to fund new commitments therefore continues to act as a significant brake on fundraising.

Dry powder remains at elevated levels globally, with UK private equity houses estimated to have held approximately £190 billion at the end of 2024.The weight of PE fund capital looking to be deployed has intensified competition for high-quality assets and prolonged fundraising cycles, particularly for smaller managers. Fundraising sentiment did, however, improve compared to 2024. Recent surveys suggest that only a small minority of managers expect their next fund to raise less than its predecessor, a marked improvement on last year’s more dismal outlook. Allocators are showing renewed interest in mid-market strategies and, in an encouraging sign for the industry, first-time managers, provided they have strong, attributable track records and a stable, credible core team. This trend is being driven by large allocators’ search for better DPI¹ performance in mid-market deals compared to large leveraged buyouts and opportunities for enhanced economics through GP stakes and bespoke fee arrangements.

Several structural themes have continued to shape the market. Consolidation among sponsors remains a feature, as smaller firms struggle to raise capital while larger houses pursue scale through acquisitions. Fundraising timelines have lengthened, with processes often extending to 30 months and beyond. Continuation funds and permanent capital vehicles are increasingly being used to manage liquidity and extend hold periods. Private wealth participation has grown, with mid-market sponsors following the lead of mega-cap houses in building platforms to access high-net-worth investors, often through partnerships with established wealth managers. The secondaries market has also expanded significantly, providing an important source of liquidity. Global secondaries volumes reached record levels in 2024 and activity in early 2025 remained strong, with GP-led transactions accounting for a substantial proportion of deals.

Looking ahead, we expect these structural trends to continue in 2026 and that the combination of abundant capital, slower deployment and evolving investor preferences to push sponsors to pursue strategic differentiation and to increase their efforts to compete not only on returns but also on alignment through bespoke fee terms and GP stakes, and access to alternative liquidity solutions.