Private equity is staring down a growing pile of investments it can’t cash out of.
Fueled by the artificial intelligence frenzy, Wall Street’s 2026 deal boom is on pace to set records. But even the roaring market hasn’t been enough to help the private equity industry clear out its mountain of aging portfolio companies.Â
PE firms are sitting on 13,325 unsold US companies as of the end of May, up from 12,900 as of last October, according to PitchBook estimates. It will take 11 years to sell that existing inventory at the current pace, a two-year increase compared to last fall.
“It would be one thing if we were in difficult market times, but we have a reasonably strong economy, a stock market that sets a new record about once a week, and a booming IPO market,” said Scott Bok, former CEO of investment bank Greenhill & Co.
“Private equity is really facing a conundrum right now,” Bok added.
Wall Street is expected to churn out its biggest year for mergers and acquisitions, bond offerings, and lending, according to Dealogic data. It could even set a record for IPOs if leading AI startups Anthropic (ANTH.PVT) and OpenAI (OPAI.PVT) go through with public offerings later this year.
But for private equity’s most tried-and-true exit route, M&A, the bulk of deal volume has come from large transactions by major corporations. Many of the companies sitting in PE funds are smaller, more interest rate sensitive, and less related to AI.
Total global M&A deal volume from financial sponsors — most commonly private equity — is dropping, according to Dealogic. Through June 24, the total proceeds and number of deals have declined 11% and 8% year to date from last year, respectively. The same measures are down by a quarter or more compared to 2021 and 2022, the industry’s busiest years this decade.
Purchases from that era were made with cheap debt, before the Federal Reserve’s 2022 rate hikes, “at what we now know was sort of the top of the market,” said Steven Buibish, PitchBook’s director of US private equity research.Â
Roughly a third of firms sitting in PE portfolios are four to six years old, according to PitchBook data. Another quarter (26.9%) has been held for seven years or longer.
This has created “a stalemate” between fund managers waiting for better valuations and their limited partners who want their money back, Buibish added. Private equity’s traditional playbook is now increasingly difficult to pull off.
“The days of easy financial engineering in terms of private equity deals — just buy it and wait for the multiple to expand—are kind of in the rearview mirror,” Ivan Farman, Bank of America’s co-head of global M&A, said in a recent reporter call.
