Waiting With Conviction: Private Equity Discipline in Uncertain Conditions

Introduction

Over the last three years, slower exits and persistent questions around valuations have tested private equity. In 2025, the world has seen a surge in geopolitical, macroeconomic, and trade uncertainty. Because of the current market backdrop, this paper turns to the data to find evidence behind how private equity creates and sustains value. This paper offers quantification on exits, valuations and the drivers that may influence private equity’s future outcomes.

Before we dive into the current market cycle, it’s worth stepping back over the last 25 years to highlight a theme that has defined private equity across crises. From the dot-com bust to the Global Financial Crisis to the Covid-19 shock, private equity has consistently shown it can adapt and endure.

As Figure 1 illustrates, the asset class has historically absorbed only about 55% of public market drawdowns while capturing 100%+ of the recovery. This asymmetry underscores private equity’s resilience.
 

Figure 1 | Private equity market capture

Upside capture (100%+ on long-term average)

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Downside capture (55% on long-term average)

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Source: CapIQ, Burgiss, S&P 500, MSCI Index and StepStone analysis, as of August 2025.

Notes: Public equity here is defined as an average of S&P 500 and MSCI World indices. Upside capture is the annualized return from the prior market trough to the next cycle’s peak. Downside is defined as the max drawdown between the peak and trough during a crisis. For downside capture, Dot-com period is 1Q00–3Q02; GFC period is 3Q07–1Q09; Covid-19 period is 4Q19–1Q20; tech pullback is 4Q21–3Q22. For upside capture, Dot-com period is 3Q02–3Q07; GFC period is 1Q09–4Q19; Covid-19 period is 1Q20–4Q21; tech pullback is 3Q22–2Q25. Long term averages exclude the tech pullback period.
 

Background

In 2021, low interest rates, fiscal support and strong earnings drove a surge in exits and market performance. The next year, however, the environment shifted as inflation reached multi-decade highs, and central banks aggressively hiked rates. Between the 4Q21 peak and the 3Q22 trough, the S&P 500 declined 24% versus 6% for private equity. However, the S&P 500 has since rallied 80% through 2Q25, while private equity has gained 26%. Adding to the performance concerns, we also saw private equity distributions drop amid slower deal activity.

Historically, mature private equity portfolios have distributed 20–25% of NAV annually; yet, in recent years that number has dropped to 10–15%—a level not seen since the GFC (Figure 2). These metrics have fueled criticism—namely, that private equity, composed of smaller, more leveraged businesses, shouldn’t have fared better during the downturn, and the dampened exits point to high valuations. This paper offers a different perspective. Looking past the headlines and focusing on the data, we see a nuanced picture: Overall exit activity has slowed, but quality assets continue to find buyers, and valuations remain grounded in fundamentals.
 

Figure 2 | Annual distribution activity

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Source: Source: SPI by StepStone, as of June 2025. Sample consists of only PE Buyouts.
 

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