The trillion-dollar question haunting private capital boardrooms is about resilience in an industry undergoing its most profound transformation in decades. While private equity holds record capital reserves exceeding $1 trillion, deal volumes have plummeted 30% from their peak, venture capital has shed its growth-at-all-costs mentality, and private credit has emerged as the sector's unlikely champion. The rules that defined success for the past two decades are being rewritten in real time.
This analysis examines the shifts reshaping private capital through Q2 2025, drawing from exclusive insights and the latest intelligence from Pitchbook, Bain & Company, Harvard Business Review, AlixPartners and Tiger Hill Partners.
We explore how:
Fundraising Headwinds Persist into 2025
Private equity fundraising is showing continued signs of strain, according to PitchBook’s latest data. In Q1 2025, 131 funds secured $115.5 billion globally, well below the $178.8 billion raised during the same period in 2024. This positions 2025’s annualized fundraising total to underperform last year, which was already a down year by historical standards.
The current fundraising environment is marked not just by a decline in overall capital commitments but also by a growing concentration of capital in the hands of a few large players. While this provides stability for top-tier firms, it raises challenges for emerging managers and mid-sized funds, many of whom may struggle to close vehicles or face extended fundraising timelines.
Bain & Company’s 2025 Private Equity Mid-Year Report noted that Q1 2025 marked the first time in over a decade that no buyout fund closed above the $5 billion mark. The report characterizes this as an “unwanted milestone,” underscoring two trends: a steady decline in average funds raised and number of closings.
Spotlight: Decoding Market Conditions in Private Capital
This was echoed by James Maloney, Founder & Managing Partner at Tiger Hill Partners, a government relations and strategic communications firm, in a recent interview with PCG, “We are fortunate to advise leading firms and institutional partners that range in their stages, investment theses, business lines, and geographies. It is hard to characterize an entire industry, but to say it is a fascinating if uneven moment of change. We see novel strategies, partnerships, and products fit for deployment and formed with long-view conviction. Firms and funds are also more expressly focused on differentiation with an ever-sharpening eye to execute in a demanding deal environment and tightened liquidity conditions - all against a fast-changing macroeconomic and geopolitical backdrop.”
“In our conversations with industry leaders, we hear two consistent and complementary themes: The need to maintain focus on fundamentals for in-place businesses, weighed against the need to innovate within enterprise operations and capture value via new products or markets. Both themes are validated by prevailing industry developments.” Mr. Maloney added. “The industry continues to accelerate and expand its footprint, but recognizes discipline is paramount for success. If private capital has reached maturation vis-à-vis previous decades, it seems apparent we are entering a new phase of industry growth.”
Bain & Company’s Private Equity Midyear Report 2025 reveals the industry is recalibrating in response to persistent uncertainty. Traditional auction-driven dealmaking is giving way to more tailored, relationship-based sourcing as the valuation gap between buyers and sellers grows wider. Interest rate volatility and geopolitical shocks, most notably tariff disruptions, have reshaped deal dynamics, prompting strategic buyers to return to the market with renewed competitiveness.
Amid mounting pressure from LPs to return capital, firms are emphasizing operational value creation over financial engineering. This includes refreshing value-creation plans, prioritizing earnings improvement, and extending holding periods when necessary. Liquidity challenges are pushing LPs toward secondaries markets and full exits, even at discounted valuations, while GPs are increasingly adopting complex structures like carve-outs and GP-led secondaries. As the report notes, opportunities can emerge from turbulence, and successful firms are those embracing proactive, creative dealmaking.
As Harvard Business Review observes, PE firms operate on a fundamentally different timeline than traditional investors; they "buy to sell," targeting undervalued companies with the explicit goal of transforming their performance and financials within a compressed five- to seven-year window before exit. This high-stakes, time-sensitive model makes AI particularly compelling for the industry.
As AI capabilities continue to mature, the most successful GPs will be those who move beyond viewing AI as simply another operational tool and instead embed it as the central nervous system of their entire value creation playbook.
According to Alix Partners’ 10th Annual Leadership Survey, AI has claimed the top spot as the number one technology priority among PE-owned companies. Portfolio companies are leveraging AI predominantly for improving customer service, accelerating innovation, and boosting marketing and sales effectiveness by nearly a 2-to-1 margin. Perhaps most tellingly, PE firms are aggressively integrating AI into their own operations, particularly in due diligence processes where the technology can rapidly analyze target companies and identify both cost-saving opportunities and growth investments. The percentage of PE executives using AI in due diligence more than doubled in just one year, jumping from 18% to 38%.
While PE navigates headwinds, private credit has emerged as a clear beneficiary of current market conditions. A recent JP Morgan report shares a remarkable 60% surge in global private credit fundraising during the first quarter of 2025 alone. “On the capital raising front, global private credit fundraising jumped to $59bn (£44bn) in the first quarter of 2025, up from $37bn in the fourth quarter of 2024. This gain came entirely from Europe, which raised a record $31bn. On the other hand, allocations to funds focused on North America moderated for the second consecutive quarter to $27bn.” the report concluded.”
The asset class's appeal transcends simple yield considerations. In an environment characterized by volatility and uncertainty, private credit offers institutional investors a compelling combination of yield, relative stability, and structural flexibility. As traditional lenders remain hampered by capital requirements, direct lenders and credit-focused private equity firms are capturing a substantial market share in middle-market and sponsor-backed lending. This suggests a permanent shift in the financing ecosystem that astute private capital managers are positioning to exploit. For limited partners, private credit has become a key structural pillar of their portfolio. The implications for asset allocation strategies across institutional portfolios cannot be overstated, particularly as pension funds and endowments seek alternatives to traditional fixed income in a complex rate environment.
Strategic Priorities Heading Into H2
What separates resilient firms from the rest isn’t just access to capital, but clarity of purpose and agility of execution in a market that is fragmenting and reforming in real time. Here are some suggestions to take into consideration to make the most out of the second half of the year:
Now is the time to recalibrate, refocus, and recommit to shaping the next era of private capital.