The private equity sector is entering a 'survival of the fittest' phase, with many smaller funds at risk of extinction due to low returns and difficulty in capital raising.
The private equity industry is currently undergoing significant challenges, characterized as a 'Darwinian phase' where smaller funds are at a heightened risk of disappearing. According to a report by Bain & Company featured on CNBC, the sector has seen its fourth consecutive year of low returns for investors, with only 14% of managed capital being distributed in 2025—a level not seen since the global financial crisis of 2008-09. This situation suggests a troubling trend for the industry, particularly for smaller players who struggle to remain competitive.
An alarming statistic reveals that around 32,000 companies remain unsold in the portfolios of these funds, cumulatively valued at nearly $3.8 trillion. The average holding period for investments has also increased to seven years compared to five to six years during the 2010-2021 period. Additionally, the number of exits has declined by 2% in 2025, indicating a stagnation that may further exacerbate the pressures on small funds, making it difficult for them to navigate the current market landscape and remain viable as entities.
Capital accumulation is increasingly becoming concentrated among a few large players, while smaller and emerging managers face immense challenges in securing commitments from investors. This squeeze on capital raising could lead to a further consolidation within the industry, favoring the larger firms, and increasing the risk of extinction for smaller players who are unable to adapt to the evolving investment climate.
