Smaller private equity managers are facing mounting financial and operational pressures as higher borrowing costs, weaker portfolio performance and a prolonged slowdown in exits reduce prospects for investment returns and employee payouts, according to a report by The Wall Street Journal.
New State Capital Partners, which manages approximately $2bn, has reportedly seen around a third of its employees leave over the past year, including two of its three founding partners.
The departures come as employees face uncertainty over potential carried interest payments from the firm’s second fund, which began investing in 2018. Underperformance among portfolio companies and rising financing costs have complicated prospects for profitable exits.
The report highlights the particular challenges facing private equity firms managing less than $15bn, which often lack the diversified revenue streams and capital resources available to larger alternative asset managers such as Blackstone and Apollo.
Fundraising conditions have also deteriorated. Private equity firms raised approximately $222bn through September 2026, compared with $330bn during 2025, as institutional investors continue to prioritise distributions and established manager relationships.
Some firms have responded by adjusting their investment strategies. New State is expanding into independent sponsorship transactions, while Aterian Investment Partners has opted against raising a new fund.
The slowdown in exits is also affecting recruitment and retention across the sector, with delayed realisations reducing carried interest expectations and increasing pressure on firms to manage existing investments for longer.
