The private equity industry is currently grappling with a record $3.8 trillion backlog of unsold assets, a figure that increased 3% year-over-year despite $700 billion in exits in 2025. This situation stems largely from persistently high interest rates, which have made leveraged buyouts more expensive and valuations, particularly in tech and healthcare, have compressed. The average holding period for private equity investments has also risen to about seven years, up from five to six years before 2022.
Dealmaking has slowed considerably, reaching a decade low. Analysts point to a significant valuation gap between buyers and sellers, with some industry figures admitting that private equity has "lost its way a bit" and is "constipated" when it comes to selling assets. While the exit backlog isn't seen as an indictment of the entire industry, it represents a challenge for deals made near market peaks that no longer align with current market conditions.
The impact is evident in institutional investor returns. The Ontario Teachers' Pension Plan saw a -5.3% return on its private equity portfolio in 2025, its worst since 2008. The Ontario Municipal Employees Retirement System experienced a -2.5% return, its worst since 2020. Over $1 trillion in "zombie funds"—private equity vehicles over ten years old—have accumulated, growing sixfold in the past decade, significantly faster than the industry's total asset growth. This indicates that older, more problematic assets are piling up, and experts like Per Franzén of EQT predict up to 80% of private capital firms could become zombie entities within a decade, unable to raise fresh capital.
Approximately 13,500 U.S. companies are currently held in private equity portfolios, with a noticeable buildup of deals from 2018-2022 showing significantly higher retention rates compared to historical averages. This translates to about 1,400 additional investments from that period still held by sponsors. The Federal Reserve's recent decision to raise interest rates further is expected to exacerbate these problems, making deals even more difficult and increasing the $349 billion already sought by investors from these struggling funds.
