Private equity firms are sitting on roughly $1tn of unsold assets – tying up capital that would normally have been returned to investors by now – as global M&A activity falters under the weight of high financing costs, tariff uncertainty, and geopolitical risks, according to a report by Reuters.
The report cites PwC’s midyear outlook as highlighting that in a typical cycle, that capital would have been recycled into new transactions or distributions. Instead, firms are holding onto portfolio companies far beyond the traditional five-year window, with PwC estimating that 30% of the $3tn currently invested by PE managers has been held for more than half a decade. M&A deal volume through May remained flat year-over-year at 4,535 deals worth $567bn.
Limited partners are growing impatient. “In a normal environment, that $1tn would be back in the market,” said Josh Smigel, PwC’s US private equity leader. His colleague Kevin Desai added that 30% of survey respondents have paused or revisited pending deals because of tariff headwinds alone.
Facing stretched hold periods and suboptimal exits, PE firms are turning to creative value-enhancement strategies. These include spinning off business divisions – capturing “break-up” premiums when carved-out segments command higher standalone multiples – and exploring opportunistic secondary sales to strategic or financial buyers.
Cross-border dealmaking has also cooled: international transactions now make up 16.9% of PE activity, down from 18.7% in 2021, with China-related investments under heightened scrutiny.
Despite the headwinds, PwC remains cautiously optimistic that M&A will rebound once the US recession risk recedes, tariff policies stabilise, and interest rates ease. Forced pricing adjustments and renewed LP pressure for liquidity, it argues, should spur a resurgence of private equity transactions in late 2025 and into 2026.
