The $5 Trillion Private Equity Imbalance

Key Findings:

• A more accommodating capital market is expected to restore the natural cycle in the private equity industry. The backlog of long-held portfolio companies should begin to see exits, easing the stress within the system.
• However, the data suggests the private equity exit drought might be a larger issue—one with both cyclical and structural forces at play. Simply put, the exit rate can’t keep up with the growing backlog of companies, compounding the amount of trapped capital in the system.
• A widening divergence in returns is a likely outcome. Even as exits increase, the valuation gain of these exits is diminishing. Investors looking for top performance should prioritize manager selection, and those funds with disciplined origination valuations and value creation capabilities.
• With this in mind, we look at the exit backlog and suggest a few ideas that could bring new sources of liquidity to the industry. None are guaranteed, but if the top of the funnel has structurally evolved, the bottom must adapt as well.

Private equity industry is at a critical juncture. The industry is larger than it has ever been with $5 trillion pouring into funds over the past five years.¹ And with a larger population of companies staying private for longer, there’s a necessary evolution in the way assets are held and offered liquidity. Fundamentally, there’s an imbalance forming with a compounding backlog of portfolio companies that are searching for an exit.

The most common exit paths have traditionally been acquisitions by corporate or private equity buyers. Yet it’s uncertain as to whether M&A will expand at a sustainable pace to keep up with the new dollars being put to work, or at valuations that will provide the returns consistent with prior decades.

Other solutions such as secondaries and continuation vehicles provide additional sources of liquidity. Yet these solutions are small relative to the total value tied up in privately held companies. With this in mind, we look at a few ideas that could bring more liquidity to the industry, while also recognizing that private equity has seen transformational growth which will have repercussions for holding periods, distributions and ways managers realize returns.

Measuring the Exit Overhang

The number of private equity (PE) owned companies continues to grow, reaching a record 13,100 in 2025.² This comes as the money managed by PE has increased by $5 trillion since 2014, to a total of $7 trillion by the end of 2025.³ But returning this capital is proving to be the real challenge. By almost any measure, the assets PE holds – and the market’s capacity to absorb them – signal pressure on exit activity and distributions.

Portfolio company age, for example, is rising as 16% of PE-owned companies are now eight to 12 years old. This measure has historically been closer to 13%.⁴ When we look at a simple measure of the number of companies that PE owns (inventory) to the total number it sells (exits), the annual ratio has increased to 10.9x from a historic average of 6.9x (Exhibit 1). Meaning, the exit rate has not kept up with the growing backlog of companies.

Looking at this another way, PE managers are holding onto company investments about 20% longer than they used to. In 2025, the average age of a portfolio company was 4.4 years – a twenty-year high.⁵

PE Entries Are Adding to the Inventory

The surge of new capital entering PE must go somewhere, which is resulting in higher acquisition activity. Even after the buying frenzy in 2021, buyout activity has remained above historic levels—buyout funds are holding twice the number of assets they were in 2019.⁶ But that rate at which these assets are sold has been in decline (Exhibit 2).

What’s happened is that the capital that flowed into the industry over the last decade has inflated the backlog of portfolio companies, as traditional exit channels haven’t kept up with the growing base of investments. For example, companies that are backed by PE account for about 35-45% of PE exits but they might not be willing to pay the higher multiples that sellers are demanding.⁷ And IPOs have not traditionally served as the primary source of exits, accounting for about 15-20% of PE exit value on average over the past 20 years.⁸ This is creating pressure on exit paths and compounding the amount of trapped capital in the industry.

Valuations Are Also at Play

The 2021 to 2022 period was characterized by a willingness for buyers to pay a premium valuation. The average multiple that global buyout firms paid for companies was 11.5x EV/EBITDA in 2021, which marked a record high entry valuation (Exhibit 3). In the years since, buyout firms have continued to pay elevated average multiples. This creates the risk of return compression when these assets are put up for sale. Lower returns and slower capital distributions can create challenges when asset managers look to raise their next fund.

To illustrate this point, Exhibit 3 shows entry and exit multiples, with exit multiples on a five-year lag. For example, the average entry multiple of 6.9x in Period 1 corresponds to 2010 and aligns with an exit multiple of 10.9x for 2015 transactions. This time lag accounts for a typical PE holding period. Exit spread, or the multiple expansion from deal entry to exit, averaged about four points from 2010 to 2020 but compressed to 1.6 points starting in 2020. This multiple compression is one reason that exits are slow : Sellers are waiting for more attractive exit opportunities or are turning to fresh ways to return capital to investors.

Asset managers may also be hesitant to sell assets early, or before they achieve an intended return (e.g., an 8% hurdle rate). An exception could be if the fund is generating strong performance. In this case, a single asset sold below a desired return is in the context of a high performing portfolio and might make less of a difference in overall fund performance.

PE has underperformed over the past three years, with annual returns averaging 4.4% compared with the 14.7% annual average from 2010–2024.⁹ Add in that funds are managing a portfolio with more assets originated in the 2021-2022 period, which have higher entry multiples. Rate cuts and more robust capital markets could change views on exit valuations and generate greater multiple expansion, but not overnight.

Where to go From Here

The record number of PE‑owned companies, paired with robust new deal activity at elevated valuations, is putting real pressure on the industry. The PE cycle, which for generations provided a predictable flow of cash back to investors, isn’t operating as it used to and faces a new era. While continuation vehicles and secondaries can help, they are unlikely to make a big dent in the backlog. In other words, the industry needs a far bigger and broader solution.

The Secondary Market Only Scratches the Surface

Investors and managers seeking liquidity often turn to the secondary market. Secondary transactions provide a degree of liquidity but can also extend the holding period for fund managers and delay a true liquidity exit. Strong supply will likely continue to support the market—2025 secondary volume of $240 billion increased nearly 50% year-on-year.¹⁰

However, this only scratches the surface. Based on secondaries turnover, defined as secondary transactions as a share of unrealized value, less than 5% of the backlog is cleared through the secondary market each year (Exhibit 4). And when considering about half of secondaries volume ($125 billion) is driven by institutional investors selling portions of their maturing PE portfolios, the impact on the overall backlog is even smaller.¹¹ We expect secondary transactions to play a larger role for both asset managers and investors, but it will not solve the PE exit backlog all alone.

Even if secondary transactions expanded to 10% of unrealized value, it would imply $600 billion of secondary volume by 2030. That would mean over $5.5 trillion worth of value would still be in the pipeline toward an exit.

Private Asset Marketplaces

The race to create a private asset marketplace is already underway. The questions are whether these marketplaces will see significant transaction volumes, and what assets could change hands. The tailwinds that support a marketplace are the growth in private assets, improving transparency, and widening asset ownership by institutions and investors. Standardization around terms, structure, and even asset pricing are factors that can accelerate the use of marketplaces to trade private assets.

However, equity assets don’t always conform to standardization. Terms are distinct and valuation is more subjective. It’s entirely possible that trading in marketplaces could come to private equity. But we think this would resemble a secondaries transaction or one that is brokered at an asset level. This is less likely to create the necessary volume to alleviate the degree of unrealized value in the near term.

More Possibilities

In addition to secondaries and private asset marketplaces, a greater crossover of private assets to public managers and the participation of sovereign wealth funds might help.

• Cross-over funds: It’s hard to quantify the impact. But public asset managers are expanding their ownership of private assets. We expect ETFs and mutual funds that allow private market exposure will incorporate more private market allocations within their funds. This helps asset managers meet individual investors where they are comfortable transacting and could offer a source of liquidity to the private markets.

Yet, only $17 billion of U.S. mutual fund assets (about 0.3%) were invested in private companies (data as of June 2024, most recent comprehensive analysis).¹² This opportunity has evolved significantly – recent partnerships from firms including  Capital Group, Fidelity, State Street, T. Rowe Price and Wellington all focus on incorporating both public and private market investments in a single product – which could bring more capital and buyers into the private markets. But regulatory and structural limitations remain, specifically managing illiquid assets in a liquid product.

• Sovereign wealth funds:There has also been sharp activity in private market deals by sovereign wealth funds which suggests they could become a bigger direct investor. Sovereign-backed private market deals amounted to about $200 billion in 2025, which was more than double the annual value seen over the last five years and exceeded that from pension funds.¹³ The average size of sovereign deals is typically larger than PE direct investments and consequently, may offer asset-specific rather than broad-based liquidity to PE.

A large amount of unrealized value could be the new normal, given the search for liquidity across the market takes time to unlock. The value locked in privately held companies won’t be released by a single solution—and it won’t be released quickly. The fact is that private equity is funding a larger share of the economy, and this has ramifications for holding periods, distributions, and new ways for managers to realize returns for investors.