After years of sluggish returns, fewer deals and a buildup of dry powder, 2025 appeared to indicate that the private equity industry is defrosting. Dealmaking is on the rise, and the market for initial public offerings is reemerging, according to research from consultant McKinsey & Co. Yet the industry still faces significant structural headwinds.
“This is not your grandfather’s private equity industry; this is a very changed industry after decades of growth, and [it] is way more challenging now than it was,” says Alex Edlich, a senior partner in McKinsey’s private capital practice. “That has huge implications on deployment, on exit, on value creation, on fundraising and on [general partner] strategy.”
The industry is reeling from the third consecutive year of underperforming public markets and a continuing decline in distributions to limited partners.
“Those are still quite challenging statistics, and then you add on the impact of geopolitical instability—and [artificial intelligence]—and we’ve got a lot of chefs needing to rethink how they’re making their meals,” Edlich says.
McKinsey’s report emphasized the need for continued evolution.
“The year 2025 may have marked a sunnier environment for the private equity industry after several challenging years, but the visibly technical terrain ahead has a stark implication: This maturing industry will need to continue to adapt,” the report stated.
Dealmaking Trends
In 2025, deal value rose 19% year-over-year to $2.6 trillion, driven largely by the completion of larger deals. Still, the number of deals fell 9%. Deals larger than $2.5 billion in value increased by 72%, while deals greater than $500 million rose more than 51%.
McKinsey noted that the rebound in deal value is a result of acquirers buying companies at higher multiples. Buyout valuation multiples are the highest they have been since 2022, at 11.8 Enterprise Value/EBITDA, due to larger deals occurring more frequently and larger deals trading at higher multiples.
Deployment pressures have limited partners flying to quality assets, while GPs are paying premium multiples for durability and downside protection, according to the McKinsey report.
The report also noted that dry powder available to GPs is aging, with 40% having been available for the past two years. Still, buyout sizes are rising without a corresponding increase in leverage, as GPs are contributing more equity to their deals. This means GPs can rely less on leverage to produce outsized returns, according to McKinsey.
Exit Activity and LP Expectations
Despite numerous headwinds affecting the industry, LP deployment into private equity strategies remained stable, with 70% of 300 LPs surveyed by McKinsey indicating that they plan to maintain or increase their private equity deployment this year.
“LPs know that the road ahead will be uneven. But rather than making a U-turn, they are choosing to stay the course and are shifting gears to navigate a more demanding terrain,” McKinsey’s report stated. “Conviction in private equity remains intact; what is changing is how LPs allocate, evaluate and engage as the industry trends toward greater maturity.”
The value of exits increased in 2025 by approximately 41% year-over-year to $1.3 trillion, the second-highest year on record behind 2021’s total exit value of $1.72 trillion. Still, the total count of all exits last year declined by 15%.
As a result, LPs and GPs are both turning to liquidity solutions like the secondaries market and continuation vehicles.
“In the surveys we’ve done with LPs, the historic stigma of continuation vehicles is not there as much,” Edlich says.
The value of these liquidity solutions have increased to $115 billion in 2025 from $35 billion in 2020, with McKinsey estimating that 14% of all sponsor-backed exits go through continuation vehicles. In five years, McKinsey estimated this figure will reach 29%.
| McKinsey Sees Private Equity on Comeback Trail for 2025 | |
| What LPs Expect From Their Alts Managers | |
| With Slower Private Equity Exits, Secondaries Transactions Tick Up |
Tags: McKinsey & Co., Private Equity
Facts Only
* The value of private equity deals rose 19% year-over-year to $2.6 trillion in 2025.
* The number of deals decreased by 9%.
* Deals over $2.5 billion increased by 72%.
* Deals over $500 million increased by more than 51%.
* Buyout valuation multiples reached 11.8 Enterprise Value/EBITDA.
* 40% of dry powder is over two years old.
* LP deployment into private equity strategies remained stable at 70% of 300 LPs surveyed.
* The value of exits increased by approximately 41% to $1.3 trillion.
* The total number of exits declined by 15%.
* The value of the secondary market and continuation vehicles increased to $115 billion and $35 billion respectively.
* LPs are turning to liquidity solutions.
* 14% of sponsor-backed exits go through continuation vehicles.
Executive Summary
Full Take
The narrative presented is a carefully calibrated attempt by McKinsey to project an image of a cautiously optimistic private equity industry, strategically positioned for a rebound. The emphasis on larger deal sizes and increased multiples—a clear signal of renewed acquirer confidence—is a calculated move to reassure investors and potential partners. However, the carefully worded language around “technical terrain ahead” and “maturing industry” subtly acknowledges the ongoing challenges, framing the recovery not as a full return to previous growth rates, but as a sustainable, albeit slower, trajectory. The parallel highlighting the aging dry powder reveals a strategic vulnerability – GPs are now forced to demonstrate value with riskier bets, driven by the need to attract capital. The increasing reliance on liquidity solutions (secondaries, continuation vehicles) is not a sign of weakness but a pragmatic adaptation to a slower exit market, a move carefully packaged as a shift in “LP expectations.” This narrative leverages the “sunnier environment” framing to minimize the long-term impact of persistent headwinds.
The manipulation pattern most evident is ARC-0024 Ambiguity: McKinsey uses phrases like "technical terrain ahead" and "maturing industry" which are vague and don’t directly address the core issues (e.g., geopolitical instability, AI disruption). The strategic deployment of “LPs know they will be uneven” is a masterful deployment of the Motte-and-Bailey technique – conceding a difficult point (“the road ahead will be uneven”) while simultaneously bolstering the central argument ("choosing to stay the course"). The framing around "conviction" avoids genuine critique and instead promotes an almost religious faith in the sector.
The underlying paradigm driving this narrative is neoliberal risk-taking – the belief that market forces, even in a distressed environment, will ultimately deliver returns, requiring a willingness to accept elevated risk premiums. The unstated assumption is that GPs will ultimately succeed in navigating these challenges, a belief that’s becoming increasingly fragile given the global instability.
Implications are significant, particularly for those reliant on private equity for retirement or wealth generation. The narrative risks obscuring the long-term structural risks and amplifying the illusion of stability. Second-order consequences include the continued concentration of wealth, the potential for further financial instability driven by excessive leverage, and the exacerbation of inequality.
Bridge Questions: What metrics beyond deal value and exit multiples are truly indicative of sustainable private equity performance? What mechanisms could be put in place to proactively mitigate the risks identified (geopolitical, AI)? If the industry truly is evolving, what fundamental shifts in strategy and governance are being implemented to account for these changes?
Counterstrike Scan: A bad actor attempting to amplify this narrative would likely highlight the specific sectors where deals are increasing (e.g., tech, healthcare) while downplaying the risks in other areas. They would frame the increased multiples as a sign of “smart money” and “value creation” rather than a reflection of stretched valuations. Furthermore, they might selectively cite positive exit data to create a false impression of market confidence, strategically omitting crucial negative indicators. This playbook aligns with the strategic deployment of overly optimistic messaging—a common tactic in industries attempting to regain credibility.
Sentinel — Likely Human
This article presents a cautiously optimistic overview of the private equity industry’s recovery in 2025, primarily through a McKinsey & Co. report. While employing a balanced and somewhat overly cautious tone, the analysis mirrors a typical consultant’s report and exhibits several stylistic characteristics potentially suggestive of AI assistance.