Private Equity: Industry Trends Q2 2025

Private equity in Q2 is contending with a mix of macroeconomic uncertainty, geopolitical tension, and sector-specific disruptions, yet it’s also uncovering new opportunities in unexpected places. 

In this in-depth Private Equity Q2 2025 trend analysis, we cover:

1)    Key Findings
2)    Private Equity Eyes the 401(k) Market, But Adoption May Be Slow
3)    US Private Equity Rebounds, But with Strategic Caution
4)    Global Private Equity Holds Steady, But Regional Divergence Grows
5)    PE Faces Weakest Fundraising Since the Pandemic
6)    PE Keeps Flying High in Aerospace & Defense, Despite Market Turbulence
7)    Healthcare PE Shifts from Volume to Value, Big Deals, Slimmer Multiples
8)    Tariff Uncertainty Chills Exits, and makes investors jittery
9)    AI Takes Center Stage Again

1) Key Findings

Dealmakers are facing a slowdown in fundraising, volatile exit markets, and rising geopolitical risks, all while trying to stay ahead of transformational shifts in technology and policy. Amid cautious capital deployment, investors are doubling down on sectors with long-term tailwinds like defense, healthcare, and infrastructure, even as macro uncertainty and tariff pressures tighten deal terms and slow distributions. 

Meanwhile, AI has become the undeniable center of gravity in the investment world, pulling venture and growth capital toward a handful of powerful platforms and leaving traditional strategies scrambling to adapt. 

At the same time, structural changes, from the re-entry of private equity into retirement portfolios to the reshaping of global supply chains, are forcing firms to think longer term and act with more precision. 

2) Private Equity Eyes the 401(k) Market, But Adoption May Be Slow

Private equity could soon make its way into American retirement portfolios, thanks to a new executive order prepared by the Trump administration. As Bloomberg reports, the order would reduce legal risks for employers and revive a 2020 Department of Labor guideline that permitted limited PE exposure in 401(k)s. That rule had since been rolled back, but a comeback now could mark a major policy win for asset managers long eager to tap into the $12.5 trillion 401(k) market.

According to PitchBook, this shift is driven in part by the decline of traditional pension funds, once a major source of capital for private equity. With those commitments drying up, PE firms are turning to where the money is accumulating: individual retirement accounts. The response from markets was immediate. 

Shares of Blackstone, Apollo, and KKR all jumped following news of the upcoming order, as per Bloomberg.

Liquidity vs. Liability – 401 (k)

Still, hurdles remain. PE products are expensive, illiquid, and hard to fit into the highly liquid, daily-contribution structure of a typical 401(k). As PitchBook notes, the SEC currently allows only 15% of mutual fund assets to be illiquid, limiting how much PE can be included. Employers are also cautious; many HR-led 401(k) committees lack investment expertise and are wary of lawsuits, especially with recent legal scrutiny over plan mismanagement.

While asset managers hope to use hybrid products like target-date funds to integrate private equity gradually, both sources agree that adoption will likely be slow. And for venture capital, the road is even tougher, as only $26 billion was raised in the U.S. 

VC funds in the first half of 2025 are the lowest in a decade, with major firms hesitant to accept retail capital due to reporting and access concerns.

Private equity may finally get a foothold in 401(k)s, but the adoption of the fund at scale will be a long game of regulatory shifts, employer education, and product innovation.

3)    US Private Equity Rebounds, But with Strategic Caution

After a rocky 2023, private equity activity in the US is showing cautious signs of revival in 2025, but it’s not a full-blown comeback. 

Deal value for the first half of the year hit $506.7 billion, pacing nearly 29% higher year-over-year, thanks to a rebound in megadeals and a particularly strong June. However, the overall mood is still wary, shaped by ongoing tariff uncertainty, credit quality concerns, and mixed macroeconomic signals.

The big picture is nuanced. 

Deal Count – a Strong June with a modest YoY growth

Deal count reached 4,429 year-to-date, a modest 8.2% YoY increase, even as deal flow in April and May slowed amid policy friction. Activity picked up again in June, particularly on the West Coast, which accounted for 24.6% of national deal value, well above its five-year average, driven by megadeals like Blackstone’s $11.5B buyout of TXNM Energy.

Add-Ons – 75% of All Buyouts, Bolt-Ons Rising – New Trend

What’s changed most is how deals are being structured. Add-ons now make up over 75% of all buyouts, the highest in recent years. Rather than chasing expensive platform investments, PE firms are doubling down on strategic bolt-ons, an acquisition by a platform company, to build scale and pricing power in a tough market environment. At the same time, take-private deals dropped sharply, with deal value down 58% YoY, as high public valuations make such plays harder to justify.

B2B – Tariff Resistant Consumer Facing Company - Slowdown

The B2B and technology sectors continue to attract capital. B2B deals totaled $127.9B YTD, while tech logged $98.7B, suggesting GPs are favoring sectors that can weather tariff turbulence and offer longer-term value creation. On the flip side, consumer-facing companies, especially those exposed to credit and inflation risk, are under pressure. PitchBook warns that rising student loan defaults and weakened consumer credit could hit this segment hard, especially with nearly 19% of aging PE holdings in the consumer space.

4) Global Private Equity Holds Steady, But Regional Divergence Grows

Private equity activity across the globe in H1 2025 is holding its ground. According to PitchBook’s Q2 2025 Global PE First Look, global deal value reached about $492 billion in the first half of the year. While that’s a stable pace compared to recent years, the headline hides some regional contrasts.

North America and Europe – Leading the PE Growth Engine

North America remains the engine of global PE, accounting for nearly half the deal value, roughly $241 billion, followed by Europe at $80 billion and Asia at around $35 billion. Deal counts tell a similar story: the U.S. and Canada combined closed over 3,100 deals, while Europe and Asia trailed behind with 482 and 159 deals, respectively.

Exit Activity – Strongest in Europe

Exit activity is also showing signs of divergence. While global exit value reached $334 billion as of June 2025, over $95 billion of that came from Europe, suggesting stronger liquidity conditions in that region compared to Asia, which clocked in under $8 billion.

Fundraising - Muted for Q2 2025

Fundraising, however, paints a more cautious picture. Despite hopes for a rebound, global PE fundraising remains muted as of midyear. Firms are still contending with a tough exit environment, slower distributions, and LPs being more selective about re-ups.

Asia and Emerging Markets - Lagging

Developed markets like North America and Europe are seeing more dealmaking and exit activity, while Asia and emerging regions continue to lag.

5)  PE Faces Weakest Fundraising Since the Pandemic

Weakest fundraising Since 2020 H1

Private equity fundraising is hitting a low point not seen since the pandemic era, and the numbers tell a sobering story. According to data from Private Equity International, the first half of 2025 has been the weakest H1 fundraising period since 2020, with a notable drop in both capital raised and number of fund closes across most strategies. This underscores growing caution among LPs in a volatile macro environment.

Middle Market Funds – Sharp Drop

The Juniper Square midyear report adds sharper detail: While total fundraising for H1 2025 reached $149 billion across 146 funds, more than 20% of that came from just two mega-funds raised by Thoma Bravo, which alone accounted for $32.4 billion - targeting large equity investments in software and technology companies. This shows a clear "flight to quality deals in technology," with capital consolidating around the most established GPs. 

In fact, funds over $5 billion made up the majority of capital raised in the first half of the year, while middle-market funds slumped, bringing in just $59.9 billion, a steep drop from their five-year average share of 54.9%.

Uncertainty around trade Policy, Interest Rates and Inflation

Annualizing current trends would place 2025 far behind 2024’s $333.4 billion across 463 fund closes, signaling that many LPs are sitting on the sidelines. One cause: continued uncertainty around interest rates, inflation, and trade policy. 

The average time in market for PE funds fell to 20 months, down from 27 months in 2024, suggesting firms are rushing to close before macro conditions worsen.

Dry Powder – Still Above $1 trillion

Dry powder, meanwhile, remains above $1 trillion, but that number may not hold. As Juniper Square points out, deal activity is outpacing fundraising, which could start drawing down reserves and shift focus back to capital deployment.

9 Years – To exit Current Inventory of PE-owned companies

PE exit activity in Q2 2025 dropped 46.4% in value and 24.9% in count from Q1, despite a strong showing early in the year. PitchBook estimates, that based on current activity, it would take nine years to fully cycle through the current inventory of PE-owned companies.

Ultimately, as Juniper Square aptly puts it, 2025 is shaping up to be a “sideways year at best.” While deals are happening, everything else, fundraising, exits, and distributions, remains sluggish. Until greater macro clarity emerges, don’t expect fundraising to rebound.

6)    PE Keeps Flying High in Aerospace & Defense, Despite Market Turbulence

Even as broader PE markets face sluggish fundraising and cautious dealmaking, private equity’s interest in aerospace and defense (A&D) continues to hold altitude. According to Kal Capital’s Q2 2025 A&D Newsletter, deal activity across the sector remains robust, with multiple transactions and an active buyer pool indicating a resilient market. Notably, Kal reports “continued interest from financial sponsors seeking scalable platforms,” especially in aerospace components, specialized manufacturing, and aftermarket services.

Despite macroeconomic uncertainty and a slowdown in overall PE activity, investors remain drawn to A&D for its long-term growth trajectory and geopolitical tailwinds. 

As Goodwin law notes in their post-Paris Air Show sector update, “capital is still being deployed” even amid short-term disruptions. While PitchBook data cited by Goodwin shows Q1 2025 deal volume dropped globally to 73 deals (from 79 in Q4) with value declining to $7.7B (from $14.9B), high-value activity continues in pockets of the industry.

Defense in particular remains a bright spot. According to Goodwin, defense deals are benefiting from multiyear procurement cycles and rising global tensions. In Europe, spending is surging at the national level, especially in Germany and Poland, fueled by NATO commitments. This is generating downstream demand for midsize suppliers, especially those meeting regional compliance standards.

Meanwhile, aerospace parts are emerging as one of the most investable categories. 

Aging Commercial Fleets and Delivery Delays

Nineteen deals closed in Q1 alone, according to Goodwin, with investors zeroing in on niche suppliers that benefit from aging commercial fleets and OEM production delays. Kal echoes this, highlighting how demand for aftermarket components is driving sponsor interest, especially as airlines keep older aircraft in service longer due to Airbus and Boeing’s persistent delivery delays.

Space Systems – Emerging Niche

There’s also increased attention on space systems, a segment seen by some investors as the next frontier. And even as trade tensions loom, RTX expects an $850 million profit hit from tariffs, according to Goodwin. 

A&D firms are responding by reshaping their supply chains and hunting for alternative sourcing, signaling resilience in the face of disruption.

In short, PE firms are still writing checks in aerospace and defense, but they’re being selective, betting on specialized platforms, supply chain resilience, and long-term demand. 

7)    Healthcare PE Shifts from Volume to Value, Big Deals, Slimmer Multiples

Private equity’s appetite for healthcare remains strong, but the strategy is evolving. According to PCE Investment Bankers’ Q2 2025 Healthcare Industry Report, deal activity is tapering in volume but sharpening in focus. 

As per the report, total annual healthcare transactions declined from 1,320 in 2024 to 1,106 deals in 2025, a 16% drop, signaling more selective investment behavior by sponsors.Despite the slowdown, value is holding firm. 

Major acquisitions such as Johnson & Johnson’s $14.7 billion buyout of Intra-Cellular Therapies and Patient Square Capital’s $3.6 billion acquisition of Patterson Companies show that investors are willing to write big checks for the right target. The report notes that strategic buyers made up 86% of deal activity, but PE firms remain especially active in provider services, healthcare IT, and med-tech verticals.

Valuation Correction from 14.78x to 12.37x

One clear signal of market adjustment is valuation compression. According to PCE, median EBITDA multiples fell from 14.78x to 12.37x, suggesting increased scrutiny and pricing discipline in a tighter credit environment.

The focus areas are distinct:
•    Med-tech and healthcare services remain ripe for consolidation.
•    Biopharma, especially GLP-1 adjacent and specialty pharma assets, continues to draw attention.
•    Healthcare IT and AI solutions, such as Roper Technologies’ acquisition of CentralReach, are gaining traction for their scalability and efficiency-enhancing potential.

Geographically, hotbeds like California, Florida, and Texas continue to dominate the landscape, while cross-border interest in innovative biotech assets is gradually increasing.

8)    Tariff Uncertainty Chills Exits, and makes investors jittery

Bain’s midyear report confirms that tariff turbulence “has shaken the world,” making investors more cautious in both deals and exits. 

Bain notes Q2 deal volumes dropped about 22%, mirroring the pullback in exits, as sponsors wait to regain clarity around Tariffs, as the tariff changes distort profit margins and crash the valuations that private equity relies on for deals. 

US PE – Exposure to Tariff Changes 

Nearly 60% of PE-owned U.S. companies have exposure to imports, making exits unpredictable and pressuring firms to consider alternatives like continuation vehicles. Add to this growing scrutiny from LPs, who are now questioning allocations to U.S. PE in tariff-impacted sectors. 

Bain says that while $1.2 trillion in dry powder remains, a significant chunk has been parked in funds for years, and pressure is mounting to deploy it wisely amid macro turbulence. Still, it’s not all doom. 

Bain highlights that top-tier firms are adapting, leaning into disciplined deal execution, sharpened due diligence, and strategic portfolio refreshes to find value and outpace the noise.

9)    AI Takes Center Stage Again

The private equity world is now playing catch-up as AI steals the show in tech investing. 

In Q2 2025, global venture capital poured $91 billion, up 11% year over year, and nearly half, 45%, of that went to AI companies, according to Crunchbase data, whereas Health and Fintech trailed far behind, with $14.8 billion and $10.8 billion, respectively. This surge in AI funding has shifted the landscape. 

As SaaSStock observes, “a handful of AI companies are dominating private investment right now,” with even SaaS startups struggling to capture attention unless they embed measurable AI value. 

Seeking Alpha echoes this “inference economy” narrative, highlighting how next-gen AI models, not just foundational tech, are drawing massive interest and returns.

VC dynamics show that the top end is booming: late-stage rounds are up 53% YoY, while early-stage activity has hit its lowest point in more than five quarters. 

In Q2 alone, AI led to mega rounds like Scale AI’s $14.3 billion raise and Thinking Machines’ $2 billion seed.

What does this mean for private equity? 

First, PE has over $1 trillion in dry powder, yet the sector is stepping aside amid a challenging exit climate. Instead, they’re watching AI deals closely. 

Axios sums it up well: “AI startups captured a dominant 53% of all global VC investments, and 64% in the U.S.” - a transformative shift that PE leaders cannot ignore.

2 to 3 times Higher Revenue Multiples

Valuations reflect the divide: AI startups now command 2 to 3 times higher revenue multiples compared to traditional SaaS. Nielsen analyst Sammy Abdullah notes median SaaS multiples sit at 5.9× revenue, yet very few SaaS companies trade above 10 times, a far cry from AI powered valuations.

AI-embedded Services and Data Center Infrastructure  – Next Bet

Despite lower PE deal volumes, many firms are positioning to enter the AI gold rush, via growth equity, carve-outs, and platform bets in AI-embedded services.

Blackstone’s recent $25 billion commitment to data center infrastructure is a sign that PE is laying the groundwork for AI-enabled future growth.

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References

• Issues Around Private Assets and 401(k)s, Pitchbook
• White House Readies Order to Bring Private Equity to 401(k)s, Bloomberg
• US PE Breakdown, Pitchbook
• Global PE First Look, Pitchbook
• PE Fundraising sees weakest first half since Pandemic, Private Equity International
• The state of private equity: Deals surge; everything else sags, Juniper Square
• What’s on the Horizon for Aerospace and Defense? A Download Après the Paris Air Show/Le Bourget, GOODWIN
• KAL Capital Markets Aerospace & Defense, Kal Capital Markets
• Healthcare Q2 2025, PCE Companies
• US PE exits bear brunt of tariff uncertainty, Pitchbook
• Leaning Into the Turbulence: Private Equity Midyear Report 2025, Bain & Company
• What happened in Q2 2025? A recap of SaaS and AI funding news, SAASTOCK
• Q2 Global Venture Funding Climbs In A Blockbuster Quarter For AI And As Capital Concentrates In Larger Companies, Crunchbase
• AI Market Update: Q2 2025 in Review, InvestingNews
• AI Posts Strong Q2 Returns as Inference Economy Takes Hold, Seeking Alpha