Why private equity matters: The case for patience

The financial advisor-focused take on “The Lead Left” newsletter series, authored by Randy Schwimmer, Vice Chairman and Chief Investment Strategist at Churchill Asset Management, is dedicated to help financial advisors stay informed about developments, and movements in private capital investing.

Bottom-line for advisors upfront

1. The gap between private equity and public market returns over the past three years is a conversation starter, not a conversation stopper.
2. The buildup of nearly 13,000 unsold portfolio companies, 30% of which have been held for seven or more years, may be the setup for the next chapter — and clients with appropriate liquidity profiles may be positioned to benefit from it.
3. Manager selection is one of the most important decisions an advisor can make when allocating to private equity, and the past three years have made that clear.

As the deal-making environment improves with lower interest rates and a strengthening economy, your high-net-worth clients may be asking about private equity opportunities. Here's what advisors need to know to have informed conversations about this evolving asset class.

Deal-making is poised to rebound, thanks to lower interest rates, a strong economy, and an overall favorable macro environment. So why does the media persist in predicting a gloomy outlook for private equity? There is certainly less optimistic data about the industry. Fundraising, for example, has slowed. According to PitchBook, PE firms raised $320 billion last year (through September 30). This is a far cry from the $650 billion three years ago, making 2025 one of the worst fundraising vintages in ten years. The number of funds created has plummeted as well.

How about exits? In 2025 an estimated 1,250 companies were sold by private equity firms. That's down from 1,450 in 2022 and from a high-water mark of 1,950 in 2021. U.S. PE inventory now stands at nearly 13,000 portfolio companies, of which 30% are at least seven years into their hold period.

Maybe most importantly, returns are down. According to most recent data from Burgiss, between 2022 and 30 Sep 2025, U.S. PE firms generated annualized returns of 6.1%, including investor fees.¹ The S&P 500 produced roughly 12% annualized returns over that same period.¹ That was not the case in the zero-gravity world prior to 2022, when PE outperformed public equities.

Just since Covid, private equity managers have endured inflation, labor shortages, supply chain disruptions, higher interest rates, open-and-shut public credit markets, and tariffs. No wonder fundraising, exits, and returns were suppressed as sponsors toiled through these macro challenges. Nevertheless, experienced managers are also skilled operators, and most portfolio companies are in good shape today. The ice cube of unsold companies is melting. As we've said before, Rome wasn't bought in a day; it won't be sold in a day.

Over the next few weeks, we'll take a closer look at dynamics surrounding private equity, particularly how middle market firms are distinguished from large cap ones. We'll provide context and a bit of history as to private equity's role in capital formation. And critically, how it supports U.S. corporate strategies and offers investors opportunities for income and growth.²

We'll discuss how experienced PE sponsors compete amid these ever-changing market conditions, how they manage with higher interest rates, and how they find ways to keep investors happy enough in a slow realization environment to still put money into new funds.

Finally, we'll examine ways capable firms turn good performing companies into great ones, how they work with strong management teams to build enterprise value, which industries are ripe for consolidation by market leaders, and the role financing partnerships play in optimizing value for managers and their investors.