Private Equity Faces Triple Threat of Underperformance, Trapped Capital, and Stalled Exits, Hamilton Lane Reports

What's New

Hamilton Lane's 2025 Market Overview reveals private equity is significantly underperforming public markets for the first time in years, with exit activity at historic lows despite record-high net asset values. Distribution levels haven't been this low since the Global Financial Crisis, creating a liquidity crunch.

Why It Matters

This confluence of lagging returns, trapped capital, and sluggish deal activity challenges the private markets' traditional value proposition, forcing investors to rethink allocation strategies and creating fundraising headwinds that could reshape the industry landscape.

Big Picture Drivers

Performance gap has emerged with private equity significantly trailing the S&P 500, breaking a decades-long pattern of outperformance and raising questions about future allocation decisions.
Liquidity drought persists as distribution activity remains at levels not seen since the GFC, with an enormous bid-ask spread preventing exits despite healthy portfolio company performance.
Fundraising pressure continues for the third consecutive year with 2024 fundraising down more than 50% from peak levels, creating existential challenges for many managers.
Structural shift toward evergreen funds and private wealth channels is accelerating, potentially growing from 5% to 20% of private markets over the next decade.
Macro environment resembles the 1990s soft landing, with stable inflation, high interest rates, and concentrated public market returns focused on large-cap AI-related stocks.

By The Numbers

11.8% vs 12.8% – Purchase multiples in North America vs. Western Europe in 2024, remaining near record highs.
22% – Average loss ratio for buyout deals over the last 20 years, with bottom-quartile managers losing capital on nearly 40% of deals.
0% – Exit markups in 2023, compared to traditional 20% markups from NAV prior to exit.
30% – Growth rate needed for evergreen funds to reach 20% of private markets AUM in 10 years.

Key Trends to Watch

Deal activity remains slow with contribution rates at GFC-era lows, but a resolution of the buyer-seller standoff appears inevitable in 2025 when one side capitulates on pricing.
AI revolution mirrors the internet boom of the 1990s, with future winners likely emerging from private markets despite current revenue streams lagging valuations.
Mega-funds continue gaining market share as investors seek safety, despite data showing zero correlation between fund size and performance.
Evergreen structures are proving competitive with closed-end funds on performance despite offering greater liquidity, potentially disrupting traditional fundraising models.

The Wrap

Private markets stand at an inflection point that requires strategic adaptation. Investors should consider increasing co-investment and secondary activity, exploring evergreen structures, and potentially rebalancing toward equity while being selective about price or growth characteristics. As Hamilton Lane notes, "The ways people invest, the structures around investing, are all changing and will overwhelm the way you do business today."