Private equity has caught a lot of flak this year, and to be clear, that’s not our aim here. We have a deep respect for the profession and count many smart, hardworking PE professionals as friends and clients.

They’re operating in a brutally difficult environment: quality deals are harder to source, competition is intense, multiples are high, rates remain elevated, AI is disrupting business quickly, and growth is anything but guaranteed. Our goal isn’t to malign private equity, but to honestly acknowledge that the classic five-year hold, hockey-stick return story is running into real-world friction. In this piece, we’ll look at how holding periods have evolved and what that says about the challenges PE firms are facing today.

In short, private equity is in a jam and not the kind you grow out of with “new value-creation playbooks.”

Across the board, PE firms are sitting on aging portfolios, underwater valuations, frustrated investors, and fading credibility. That’s not just a Wall Street problem, or a problem in certain PE firms; it’s nationwide, and it’s shaping how businesses are bought and sold across the lower middle market.

The Numbers Tell the Story, but Not the Whole Story

EY’s Private Equity Exit Readiness Survey 2025 revealed that 78 percent of PE firms are holding assets beyond their typical five-year investment horizon. Many have exited five or fewer portfolio companies since 2018. Fundraising is down more than 30 percent year-over-year, and exit activity in early 2025 fell to its lowest level in two years.

Bloomberg summed it up bluntly: “Things aren’t going all that great for private equity firms.” PE firms are generally struggling to sell, to provide regular and exit distributions to their investors, and to convince limited partners (LPs) that the model still works.

Meanwhile, The Wall Street Journal noted that even the publicly traded giants such as Blackstone and Apollo are lagging, despite expanding into 401(k)s and retail investment channels.

For many in the industry, this has created what EY calls an “exit-readiness gap.” But the issue runs deeper than readiness.

The Financial Times published an article by Alexandrea Heal that speaks to an assessment of the industry by Per Franzén, chief executive of Sweden’s EQT, a global investment organization with over €266B in assets under management. Franzén observes that 5,000 of the 15,000 private capital firms across the globe have raised a fund successfully within the last seven years; due to this, he believes that the number of “zombie firms” will rise by the thousands, and only about half of those that have been successful in the last seven years will be successful in the next five to ten years.

Franzén speaks to the trend of PE firms raising continuation vehicles, which provide the firms with a new source of fees and revenue within their existing portfolio. In the article, he says, “It’s not a sustainable business model to squeeze out fees out of . . . existing funds and to opportunistically raise continuation vehicles.” He continued, “That’s not going to help you attract and retain the best people in the industry… At some point, these firms will cease to exist.”

Other leaders interviewed in the Financial Times article speak to the projected, immense, and growing need for capital within the next decade. An analysis from Preqin has said that the number of PE funds reaching a final close this year is the lowest in at least 9 years.

The Decision Private Equity is Facing

“Generally speaking, the root of the issue here is that PE overleveraged, overspent, and businesses have not grown revenue or profit sufficiently to justify a reasonable exit for their investors,” said Sam Scharich, Managing Director – Buy-Side at Calder Capital. “In an effort to serve their investors and earn their keep through exit fees and carried interest, PE has tried to hit nothing but home runs, but they are coming up short. The choice they face right now is sell and recognize lower returns than expected or keep holding and hope it gets better. What we are seeing is that almost everyone, of course, is doing the latter.”

Talent and Leadership Continue to Differentiate PE Firms

“The more I consider the results of EY’s survey, the more I realize this is not only an inflation, interest, re-shoring, or value-creation issue; it is also a leadership and people issue,” said Max Friar, Managing Partner at Calder Capital. He continued, “PE firms, especially those with 5+ years of ownership, know exactly what data and KPIs need to be hit for a successful exit. And they also know, painfully well, what an independent valuation will say. The survey says that 66% of respondents acknowledge that when their firms don’t meet valuation targets, they wish they focused more on preparing management better for an exit. That is a people issue and a leadership choice. They know what the market will tell them, but many just can’t bear to face it because their investors won’t be happy. As Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked.” Well, 2025 brought the tide down, and there is a lot for the world to see.”

Readiness is Still the Differentiator

Hannelore Jones, Director at Calder Capital, agrees that human behavior is an element at the center of today’s market stall, but she emphasizes that execution discipline still separates those who close from those who don’t.

“In a slower exit environment, the main differentiators of successful PE firms remain the same: readiness, resilience, credible forecasts, and a management team that can lead and transparently explain the story,” Jones said.

What This Means for Sellers

Garrett Monroe, Managing Director, Sell-Side at Calder Capital, encourages sellers, saying: “Preparation is critical leverage for a seller in today’s market. The higher the quality of your data, leadership, and narrative will directly influence whether a buyer takes you seriously, and it could influence offers received.”

Calder Capital also points out that:

• Certain valuation contributors are not what they were, chiefly interest rates. Owners expecting 2021-style multiples are going to sit. We are seeing that the buyers who are primarily active now: strategics, family offices, self-funded entrepreneurs, and smaller PE funds are primarily paying for cash flow and are less willing to pursue a target based on a growth story or projection.
• Speed and flexibility will continue to provide wins for sellers. Bloomberg reports that with fewer institutional buyers in the mix, sellers who are willing to negotiate terms, such as rollover equity, earn-outs, and seller notes, may receive more offers, and their transactions will move faster. With a general observation that pension funds and endowments are over-invested in PE, strategics are cautious due to macro-economic factors, and PE-to-PE deals are being constrained by financing and an inability to fundraise, a seller’s ability to negotiate on terms becomes increasingly important.

What This Means for Buyers

Sam Scharich, Managing Director, Buy-Side at Calder Capital, shares, “Financial discipline and deal structuring matter even more in today’s market, due to a higher cost of debt and an increasing amount of economic and geopolitical volatility.”

Calder Capital has seen Buyers succeed who do the following:

• Pursue opportunities with intentionality. If you’re a decisive buyer and have the tools to differentiate quality deals from the rest, you may find less competition for select companies.
• Many sellers whose performance is down in 2024-2025 compared to 2021-2023 are still anchored to old valuation expectations. It is important that Buyers exercise patience and can kindly educate them on any calculated variances.
• Operational excellence is the new differentiator. With less upside for multiple expansion due to higher-than-traditional interest rates, post-acquisition management, driven by talent, process, and systems, is now the main determining factor for excellent returns.

What This Means for Private Equity Investors:

The Wall Street Journal wrote about how Private Equity is facing a “perfect storm,” due to:

• A general inability to profitably exit companies
• Slower fundraising timelines
• Higher interest rates than were enjoyed a few years ago
• Questionable valuations
• And the rise of secondaries and continuation funds

The Wall Street Journal has observed that buyers of PE-owned companies are becoming more selective, and with that may come unfavorable structures or limited competition, which may mean unfavorable exit conditions for an investor.

What this “perfect storm” poses to Private Equity Limited Partners is a need to learn their General Partner’s investment strategy, to entertain a higher level of engagement than originally planned, and to entertain diversified equity interests within public and private markets.

If a fund or special purpose vehicle that was invested in by a limited partner sells within the holding timeline for less than expected, it would prove helpful to have had diversification across PE firms, industries, and markets.

On the other hand, if a fund or special purpose vehicle that was invested in by a limited partner is extending their hold on the investment in order to chase a higher return, then it would be helpful for the limited partner to not be reliant on a liquidity event of that investment. The more reliant the limited partner becomes on a liquidity event, the more the LP may open itself to an unfavorable secondary purchase or other unfavorable events.

Bottom Line

For years, cheap debt, high multiples, and faster liquidity events disguised a deeper dependence on interest rates set by the Fed, macro-economic stability, and steadily growing valuations. Now, that veil has lifted.

For independent buyers, strategic acquirers, and private business owners, the lesson is the same: process, people, and preparation beat financial engineering, a new CRM, and a good consolidation story.

As Friar put it, “Private equity is a tough business – finding deals, competing, buying right, transitioning successfully, and growing returns substantially in such an uncertain world is a behemoth task, especially in 5 years! When rates are low and Uncle Sam is juicing the market, everyone wants to pile into PE. Things ebb and flow, and many headwinds like tariff uncertainty, businesses absorbing price increases (margin compression), and AI are causing things to ebb a bit. It may sound like we’re dissing on private equity, but there’s a reason we remain business intermediaries and have not ventured into PE ourselves.”

About Calder Capital

Founded in 2013, Calder Capital is a cross-industry mergers and acquisitions advisory firm with offices across the United States. Calder provides valuation, sell-side, and buy-side services. We are nationally recognized for excellence in advising $1-100M enterprise value transactions in manufacturing, construction, distribution, and business services. Calder serves business owners, entrepreneurs, family offices, financial buyers, and investors. Learn more at www.CalderGR.com.