The State of Private Equity Q3 2025: the long-awaited recovery knocks?

What a difference a quarter point makes! The Federal Reserve’s rate cut in September revived investors, and private equity (PE) deal activity has risen, not just in response to the cut already made but in anticipation of at least one more in Q4. According to the PitchBook Q3 2025 US PE Breakdown, 2025’s year-to-date deal and exit values have already exceeded the totals for 2024 and counts look poised to do so by year’s end, although fundraising continues to lag on all dimensions. Things are looking brighter…we hope.

Despite the uptick in exit counts, limited partners (LPs) don’t feel flush enough to commit to new funds. Three megafunds closed in Q3, led by Veritas Capital’s final close on $14.4 billion for its ninth flagship—after more than 2.5 years in the market. Stone Point Capital and Great Hill Partners made up the other two; the first closed its flagship Trident X on $11.5 billion and the second raised $7 billion for its ninth growth equity vehicle. It seems highly likely that 2025 will be the second year in a row when both the capital raised and number of funds will both decline.

Firms are spending more time fundraising. While Veritas’s 2.5 years is on the high side, Preqin reported in July 2025 that the average time in the market for private capital funds globally had hit 25 months, up more than 50% from 2020’s level of 16 months. At the same time, those firms that are closing their funds, regardless of time in the market, are reaping rewards for their patience. PitchBook notes that 76.2% of PE funds that closed in Q3 2025 did so at levels above their earlier fund—and the median rise was 40%.

Middle market funds ($100 million–$5 billion) have closed 119 funds that raised $108 billion through the first three quarters of 2025. These fund managers face the same liquidity-constrained LPs, who have been forced to prioritize certain relationships. Often, the chosen relationships are with multi-stage megafund managers, which penalizes both mid-market and emerging managers.

In general, fundraising seems unlikely to increase much in the last quarter of 2025. As of this writing, the ongoing government shutdown has closed the IPO window while distributions from other avenues remain constrained. A few megafunds may close in Q4 but even that seems unlikely to boost 2025’s totals to those of the past few years. A bright note is fund performance. At 9.7% for PE’s overall one-year rolling quarterly returns as of Q4 2024, returns are “teetering on the edge of double-digit territory.” But key to boosting this metric further would be an increase in exits.

Exit value for Q3 fell by 41% from Q1’s recent high, to $125.5 billion generated by 464 transactions. Nonetheless, values for the first three quarters of 2025 have already exceeded the levels since 2021. Much of this is thanks to the number of mega-exits this year, which made up 77% of the exit value. Moreover, 2025’s exit count is on pace by year’s end to surpass the results of every year since 2021, suggesting that exits might just be coming back.

The dynamics of exit count rising (by 22.4% compared to Q2 2025) while value falls—by 29.6%— represents a shift from the past three years. Previously, count was low as firms sold their most attractive deals, eager to provide returns to LPs while continuing to add value to less-mature holdings. If Q3’s exit count persists, the exit inventory drops from nine years, at 2024’s pace, to a more palatable 7.7 years.

Median hold times for U.S. PE-backed companies are also dropping. The peak median hold time for an exited company occurred in 2023 at seven yearsThis has now fallen to six years, which is still above the pre-pandemic figure of 5.2 years. For companies still held in portfolios (that is, not exited) the median has climbed to 3.8 years, the highest level since 2011. This finding indicates that the current inventory of PE-backed assets is getting older, and points to a troubling trend: high-quality assets that command exit interest are identified and acquired earlier, while those still in the portfolio struggle to accrue enough value to exit.

The largest Q3 exit was the sale of Foundation Building Materials, a building product distributor, to Lowe’s by Clayton Dubilier & Rice and American Securities for $8.8 billion. Eight exits occurred via IPO, bringing to 20 the number of PE-backed IPOs this year, already exceeding 2024’s total of 18. The government shutdown, though, has frozen listing activity.

Continuation vehicle (CV) exits, which hit 105 through Q3, seem poised to break 2024’s full-year record of 126. The trend of second-level continuation vehicles (CV2s) that we mentioned in last quarter’s newsletter is gaining traction. At least three firms—Accel-KKR, CapVest, and Norvestor—have raised CV2s for either one or multiple assets. LPs, however, are not uniformly on board. Revelstoke Capital Partners’ LPs refused to approve a second CV for the medical clinic operator Fast Pace Health, signaling LPs’ impatience with the continuing distribution drought. PitchBook commented that “the PE industry needs to see more successful outcomes following [CVs and CV2s] to avoid the perception that GPs are simply kicking the can down the road.”

Deal activity in Q3 rose both compared to Q2 and to Q3 of last year. Lower borrowing costs due to the interest rate cut have already spurred deal value to $869.4 billion, higher than last year’s total of $850.9 billion. This represented a 28% boost from Q2 and 38% growth year-over-year. Deal count, 2,347, was up 3.7% from last quarter and 11.7% from 2024 and is on pace to exceed 2024 by the end of the year as well.

With lower interest rates, the value of take-privates rose although deal-count lagged that of 2024. The major driver of this trend was the record-breaking take-private of Electronic Arts (EA) at an enterprise value of $55 billion by a consortium that included Saudi’s Public Investment Fund (PIF), Silver Lake, and Affinity Partners. PE growth investment activity also recovered from last quarter, and growth deal count rose as a share of the total to 23.2% in Q3, far above the five-year quarterly average of 19.1%. Deal value for growth equity rose to 8.6% as a proportion of the total, up from last quarter but down from its five-year average of 11.5%.

Add-on activity remained flat, at 74.1% of all buyout transactions, above the five-year average of 72% as companies seek combinations to achieve operational efficiencies through scale. The largest of these transactions was the $3.1 billion acquisition of cereal maker WK Kellogg by chocolatier Ferrero Rocher. Carveouts comprised 9.8% of deals, above both the five-year average of 8.6% and Q2’s 9.5%. PitchBook sees this activity as a reflection of reduced uncertainty about trade policy and a greater focus on internal efficiency.

In light of this activity alongside slower fundraising, dry powder has slumped to just under $1 trillion. With some $990 billion of dry powder and lower interest rates, though, PE firms should still be able to do deals.

Barring macroeconomic shocks, U.S. private equity appears to be staging a cautious recovery. There are matters for concern, such as a growing stock of bad business and consumer loans that could force banks to increase their reserves. In addition, the industry continues to be dominated by large funds, deals, and exits. As long as the markets are closed due to the government shutdown, the IPO avenue will be shut as well. In the best case, the shutdown rapidly concludes, exits pick up, and the PE flywheel finally starts turning again—and if another interest rate cut occurs in Q4, it will turn even faster.