Private equity firms are sitting on an unprecedented war chest: roughly $2 trillion in uncalled capital. Often referred to as “dry powder,” this cash pile has been accumulating since the last big global mergers-and-acquisitions blowout, in 2021, when volume reached a whopping $5.9 trillion, according to Dealogic. The following year, activity plummeted 38.8%, and it’s been relatively quiet ever since.“We had a general slowdown in private equity exits in 2023 and 2024,” says Alain Dermarkar, US co-head of Private Equity at global law firm A&O Shearman. High interest rates were an issue; steep borrowing costs and lower returns created valuation mismatches, ultimately reducing the size, scope, and appeal of private equity deals.
“The leverage was quite challenging,” Dermarkar notes.
According to an Ernst & Young report, private equity activity had somewhat of a comeback in 2024, spiking 36% in value compared to 2023. Valuation gaps narrowed and more deals were completed, but it wasn’t a full rebound to pre-slowdown levels.
Kirk Konert, FTI Consulting: There’s a backlog of deals that need to either go public or be sold.
In 2025, it’s a different scenario. Many funds are starting to feel less cautious, and a chunk of that uncommitted capital is expected to get deployed.
“I think there’s a pent-up demand that’s now being released,” Dermarkar says, citing lower interest rates and the expectation that President-elect Donald Trump’s administration will be friendlier toward consolidation. “That combination is what’s prompting a lot of folks to think 2025 will be a robust year for M&A activity—particularly for private equity.”
Not everyone is convinced. Coller Capital released its private capital barometer survey in December, and let’s just say private equity investors could not have been happy. Nearly 80% of limited partners—those once-loyal backers that private equity funds depend on—declined reinvestment opportunities with at least one of their current managers over the past 12 months, the report showed.
Blame it on persistent liquidity constraints.
“LPs are getting frustrated because more money has been invested in PE than has been pulled out in the last five years,” says Jeffrey Kadlic, founding partner at Evolution Capital Partners. “If they’re not deploying that money, they’re not generating that return.”
For perspective: Private-equity dry powder peaked at $2.6 trillion in December 2023, per S&P Global. By July, it had grown by almost $50 billion.
“That uncalled capital is just waiting for a home,” Kadlic observes.
The real action will come after the dust settles in the first quarter of 2025. “Private equity takes advantage of opportunities when presented,” Kadlic says. But the first three months will be crucial. “We got to get through Q1.”
The regulatory landscape, as well as the potential for tax cuts, will likely impact how private equity firms deploy capital