Private Equity 2025 Outlook

Over the past two years, uncertainty around monetary policy and valuations has stifled IPO and M&A activity. At the start of 2024, investors anticipated a clearer investment landscape, and hopes were high for a revival. The consensus was that private equity and venture capital could adapt to a new macroeconomic reality — if the contours of that environment became clearer.

But the recovery didn’t materialize quite as expected. Rate cuts arrived later than hoped, leaving the first half of 2025 looking more like an extension of 2024. Dealmakers faced persistent pricing gaps and mounting pressure to meet rising demands for capital efficiency, keeping activity subdued.

While private equity exits and deals are set to end above 2023’s lows, the “great thaw” never dissolved. Further, a closer look at the data reveals a less encouraging picture. Examining the recovery on a count basis demonstrates that the rebound has mostly been driven by transactions from top-tier assets and outsized AI deals.

Moving into this year, asset managers are positioning 2025 as the pivotal year to reignite dealmaking and exits after this prolonged slowdown in M&A, IPOs, and capital deployment. Driving this optimism is a convergence of favorable conditions: an easing monetary cycle, tighter credit spreads, relaxed regulation, pent-up dry powder, and buoyant public equity markets. 

However, clouding the sunny outlook is persistent uncertainty surrounding the ultimate trajectory of macro conditions under a new administration. But regardless of whether the wind blows in a favorable direction or not, one thing is clear among investors: the new investment environment will continue to favor value creation and investment acumen moving forward. 

Asset Managers Expect Accelerated PE Dealmaking and Exits

With 75 basis points of rate cuts already in place — and more anticipated — dealmakers are eyeing improved financing conditions, stronger portfolio company cash flows, and a narrowing bid-ask spread, setting the stage for a potential M&A rebound. Meanwhile, equity gains have extended beyond mega-cap tech to include midsize firms, a promising sign for companies contemplating IPOs.

The Fed’s easing cycle also coincides with a shift in debt markets. Bank retrenchment in the wake of the Regional Banking Crisis dried up debt availability and drove up private credit costs. Now, the reopening of syndicated loan markets is intensifying competition, tightening spreads, and making financing more accessible and attractive, which is likely to further boost M&A.

Optimism is also building around expected tax cuts and deregulation under the Trump administration, which many see as a clear win for private markets. A more relaxed regulatory environment could unlock a backlog of deals stalled by one of the most stringent antitrust regimes in recent history. Meanwhile, corporate tax cuts promise to boost profits, giving firms more resources to pursue growth initiatives like add-ons and acquisitions.

Additionally, the clock is ticking on a massive pile of private equity dry powder. With a more supportive macro environment, LPs are expected to turn up the heat on fund managers to deploy capital. And for GPs, these post-downturn vintages could unlock some attractive opportunities across the ecosystem. 

Uncertainty Still Lingers

While a soft landing and overarching bullish sentiment remain the base case for most asset managers, macro uncertainty still clouds the outlook for dealmaking and liquidity. Namely, the re-election of Donald Trump and a Republican sweep of Congress come with potential tax cuts and tariffs, threatening to derail the momentum of disinflation. 

Additionally, public debt remains at historically high levels, raising concerns about the sustainability of public finances. Even with potential tariff offsets, Trump’s proposals are expected to widen the deficit without providing substantial economic stimulus, complicating long-term fiscal challenges.

Policy forecasts ultimately remain speculative. This said, the interest rate outlook may oscillate, inflation risk is not over, and the Fed could very well put a premature end to its easing cycle. For example, during its December meeting, the Federal Reserve signaled a slowdown in future cuts, revising its 2025 projection to just two additional reductions as inflation remains stubborn and the economy shows continued resilience.

With this in mind, the first half of the year is likely to center on observing the new administration’s agenda and how it refines the broader economic outlook. Without greater clarity on how Trump’s policies take shape, it’s difficult to envision a full unlocking of liquidity or resolution to the dealmaking drought. 

Liquidity and Exit Predictions  

With a mix of bullish optimism and lingering uncertainties, what’s in store for exits and dealmaking this year? Instead of a floodgate-opening moment, 2025 may bring more of a steady, healthy rain of liquidity to the ecosystem, with private equity likely enjoying a more favorable landscape than venture capital. 

VC liquidity hinges largely on IPOs, as M&A activity remains concentrated in early-stage deals that are less likely to bring home significant distributions for LPs. While there’s optimism about the IPO market this year, outcomes will likely bifurcate across the cap table. Despite a narrowing valuation gap, many IPOs are still priced below their latest funding rounds, meaning early-stage investors could see strong returns. In contrast, those with exposure to later rounds may face losses.

Additionally, many of the private market’s “biggest winners” still don’t need to go public for capital. Many major tech companies continue to access private funding — take Databricks’s $10 billion Series J last month — and can provide liquidity through secondary share sales if investors need to cash out. Until there’s greater clarity on policy and market direction, it’s unlikely all of these high-profile names will test the public markets this year. CNBC recently pointed to this ‘lack of desperation’ as a major bottleneck to a significant resurgence of VC-backed IPOs.

The ‘high bar’ for IPOs also remains firmly in place. Bankers, a barometer for IPO readiness, still emphasize that achieving the Rule of 40, demonstrating clear market dominance, and other demanding criteria remain intact. For example, Jason Shuman, a Partner at Primary, recently highlighted IPO expectations from a Morgan Stanley presentation on LinkedIn:

• Market Cap: $2B+

• LTM Revenue: Over $200–300M (+30–40% YoY)

• Profitability: Breakeven within 4–6 quarters

Others have cited even higher expectations. Jai Das, Partner at Sapphire Ventures told Axios he sees the scaling threshold for IPOs remaining high, with companies needing roughly $400-500 million in revenue. 

While private companies have had several years to get their balance sheets ‘fit,’ it remains to be seen just how many companies fall into this boat. So, while a wave of high-quality VC-backed companies will hit the public markets, some predict private equity will emerge as a surprising buyer for the leftover “ZIRP zombie assets“— companies unfit for IPOs or lacking the growth metrics for VC investment but ripe for PE to capitalize on value-creation opportunities.

Conversely, PE may be poised to fare better in public markets this year. According to PitchBook’s 2025 Private Equity Outlook, PE-backed firms are projected to capture 40% of IPO capital on major exchanges this year, up from the historical average of 30%. Further, looking at VC and PE 2024 IPO stock performance, PE-backed companies delivered a median gain of 20.7% to IPO investors, compared to a median loss of 6.8% for VC-backed companies. Unsurprisingly, PE’s orientation toward capital efficiency and stable cash flows provide a natural alignment with investors’ renewed appetite for stability and predictable returns.

Private equity exits have more than just IPOs working in their favor. Middle-market companies, for instance, could benefit from larger PE funds flush with dry powder, creating downstream support for exits. Additionally, improved financing conditions perhaps provide a more powerful tailwind to PE than VC. For buyout-backed companies, lower interest rates quickly improve cash flow profiles, boost valuations, and help bridge the bid-ask gap.

Ultimately, 2025 is shaping up to mark a return (or slight improvement)  to pre-pandemic exit levels, with distributions expected to rise building on the momentum gained in late 2024. This said, the backlog of un-exited companies in private equity and venture portfolios remains significant. Exit volumes are unlikely to fully solve this overhang, keeping liquidity demands in focus. As a result, alternative exit routes, like continuation funds, which gained momentum this year, are set to play a key role in addressing liquidity needs in the coming year.

Value Creation, Discipline, and Investment Acumen Will Separate Winners from Losers

Importantly, there’s growing optimism around “new deals”— companies untainted by the ZIRP era. A fresh wave of post-bubble assets has grown up in a world where capital efficiency is second nature. These “profitable by design” businesses have prioritized sustainable growth, creating a promising opportunity for 2025 to offer an attractive vintage — and private equity has plenty of capital to deploy. However, as money floods back into the deal market, maintaining discipline in deployment will be crucial. A rapid resurgence could trigger accelerated cycles, pushing the market into overheated territory.

More broadly, the private market dealmaking landscape has undergone a seismic transformation. With ultra-low interest rates now a relic of the past, asset managers remain cautiously optimistic about 2025 but concede that the old playbook is obsolete. As Marc Rowan aptly says, the new era is defined by the “absence of tailwinds.” Investors can no longer rely on real growth or record-low rates to buoy returns. Discipline in underwriting, sourcing, and exits will separate winners from laggards.

Underwriting

With multiple expansion unlikely to drive returns and entry multiples still high, precision in capital allocation and underwriting proves critical. Targeting sectors driven by long-term secular trends and assets aligned with lasting structural shifts will become more critical.

Value Creation  

Value creation and execution will become pivotal return drivers, with investment acumen and the ability to transform assets emerging as differentiators. Many posit this will push operating teams to work more closely with sector-based investment teams and fuel a broader shift toward specialization. Integrating AI to boost operational productivity and margin resilience in portfolio companies will also continue to be a major value creation theme this year.

Exits  

After navigating a liquidity crunch, LPs will scrutinize GPs’ strategies on exit discipline and portfolio construction. GPs should be prepared to articulate their approach to timing and executing exits.

In this investment landscape, private equity and venture return dispersions will likely widen. Manager selection will become more crucial, with GPs possessing deep sector knowledge and operational expertise positioned to outperform. These managers will be better equipped to spot promising sectors, better assess valuations, and execute on value creation.

As GPs begin investing in the ‘new world order,’ the ability to identify and apply insights across sectors, portfolio companies, and strategies will increasingly become a competitive advantage for investment and operating teams. Here, data and technology will provide the gateway to centralize and deliver these learnings across the portfolio.