A drought in private equity fundraising has led to a plunge in returns to levels not seen since the 2009 financial crisis, according to investment bank Raymond James Financial. Distributions to limited partners amounted to just 11.2% of funds’ net asset value in 2023, compared to a 25% median figure for the past 25 years. Factors such as higher borrowing costs, market volatility, and economic uncertainty have made it difficult for private equity firms to exit investments and return capital to investors. This has resulted in a longer median holding period for buyout firms and a decline in new fund raises.
Raymond James predicts that the fundraising market will only start to improve in 2025, as dealmaking activity picks up. Despite the drop in distributions, the aggregate capital raised by buyout funds in 2023 reached a record $500bn.
Investors’ ability to commit to new funds has been hindered by a glut of fundraising in 2021 and the fact that outsized returns from private equity are no longer guaranteed. Many institutional investors are still grappling with shifts in the industry and are not able to allocate new money to the asset class due to already reaching capacity from previous fundraising rounds. The median time to raise a fund has also increased to 21 months, compared to 18 months a few years ago.
