An LP’s guide to a reckoning in private equity

Until 2022, the past dozen years had been kind to most private equity firms. Returns were strong and fundraising followed. Even mediocre managers were able to grow. A reckoning is coming, however, amid more challenging conditions. While some firms will adapt and flourish, others won’t. Minding two megatrends may help alert LPs to discern the difference.

Key takeaways

• Opportunities in private equity are becoming harder to exploit.
• Expect more specialization and operational acumen from top-performing PE firms.
• Expect more open questions in the age of generative AI—and watch how PE firms rethink their investment priorities and value creation strategies.

After decades of declining interest rates, capital markets are experiencing a transformation unfamiliar to most private equity (PE) investment professionals working today. Dizzying developments in artificial intelligence (AI) are prompting revolutionary changes in the real economy, too. What are prospective limited partners (LPs) contemplating capital commitments to expect now?

As co-investors with a broad view of the PE market and its sectors, sponsors, and portfolio companies, we see two interrelated trends worth watching as the industry approaches an inflection point. Each may soon reveal something about which PE firms will likely thrive, and which ones won’t.

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