US Private Equity Surges 38% YoY Despite Fundraising Headwinds

What's New

According to PitchBook's Q3 2025 US PE Breakdown, private equity deal activity posted strong quarterly growth with $331.1 billion across 2,347 transactions in Q3 2025—a 28% sequential increase and 38% year-over-year gain. The resurgence follows a brief Q2 air pocket and comes as recession risk drops below 10%, Federal Reserve rate cuts take effect, and major indices reach new highs. However, exit value declined for the third consecutive quarter while fundraising remains constrained at $214.4 billion year-to-date, down from prior-year levels despite fewer funds raising larger amounts.

Why It Matters

This divergence between accelerating deal activity and sluggish exits/fundraising creates a critical inflection point for the PE industry. Strong deployment signals sponsors' renewed confidence in operational durability and favorable financing conditions, yet the growing backlog of 12,899 PE-backed companies requires broader exit recovery beyond just mega-deals. The outcome will determine whether distributions return to levels sufficient to restart the fundraising flywheel—or whether LPs face extended liquidity constraints that fundamentally reshape capital formation.

Big Picture Drivers

• Macro environment normalization: Federal Reserve rate cuts, moderating inflation, and steady GDP growth shifted market sentiment decisively toward risk-on posture after mid-year volatility

• Financing conditions improvement: Broadly syndicated loan spreads compressed to 316 basis points—the lowest since 2007—while direct lending competition intensified for quality paper

• Valuation alignment: Deal multiples stabilized near pre-pandemic norms (12x EV/EBITDA for buyouts, 9.7x for global M&A) as buyer-seller expectations converged

• Sector concentration: Technology and B2B transactions drove disproportionate value share, with tech YTD deal value already exceeding full-year 2024 levels by mid-year

• LP allocation pressure: Limited partners consolidated commitments among established managers and megafunds, creating bifurcated fundraising outcomes

By The Numbers

• $869.4B: Year-to-date deal value through Q3, up 36.6% from same period 2024

• $365.4B: Mega-exit value ($1B+ transactions) through three quarters, already surpassing $210.2B for all of 2024

• 76.2%: Funds closed YTD that exceeded predecessor size, with median step-up of 43.4%—the strongest increase in years

• $999.2B: Dry powder at year-end 2024, just below the $1 trillion peak as deployment accelerated

• 27.8%: Dry powder's share of assets under management—the lowest reading on record

Key Trends to Watch

• Take-private mega-deals are returning at scale. PIF, Silver Lake, and Affinity Partners announced the $55 billion take-private of Electronic Arts—the largest leveraged buyout ever—while Q3 saw 58 take-privates worth $195.3 billion, pacing toward the second-highest annual total on record behind only 2007.

• Continuation funds are becoming mainstream exit alternatives. Sponsors rolled 105 companies into continuation vehicles through Q3 worth $61.5 billion, exceeding 2024's pace, with some managers now deploying second continuation funds for the same assets despite LP pushback on delayed realizations.

• Middle-market fundraising faces unprecedented headwinds. Managers raising $100M-$5B funds secured just 50.4% of total capital through Q3 compared to a 55.8% five-year average, as constrained LPs prioritize megafunds and established relationships over emerging managers.

• Credit markets show structural shifts toward alternative financing. Paid-in-kind loan interest income for top 15 BDCs surpassed $1 billion on a rolling four-quarter basis, while BSL and direct lending markets fought to a standstill with $25.9B in mutual replacements year-to-date.

The Wrap

The private equity industry stands at a crossroads where improving deal conditions meet persistent exit and fundraising challenges. While sponsors demonstrate renewed appetite for deployment—including historic mega-buyouts—the disconnect between transaction momentum and capital formation sustainability requires accelerated exit activity across the quality spectrum. Success hinges on whether Q4 capitalizes on favorable technicals to broaden realizations beyond selective mega-exits, restoring distributions that fuel the next fundraising cycle. Federal Reserve policy, tariff resolution, and sustained public market strength will prove decisive.