The U.S. private equity market is showing signs of recovery, with strong deal activity and lower interest rates driving optimism, though exit and fundraising challenges remain.
The current conditions are positioning PE to close the year out on a high note, according to a PitchBook report. The analysis is not biopharma-specific but instead considers the market as a whole.
As of the third quarter, “public markets are tilting decisively toward a risk-on posture,” according to PitchBook.
That “risk-on” sentiment, paired with the Federal Reserve’s recent cuts bolstering equities, provides a more hopeful backdrop for PE, clearing some of the uncertainty that clouded the second quarter.
More specifically, PE deal activity is on the rise, especially in B2B and technology sectors. At the end of the most recent quarter, there were 2,347 announced and closed deals, up 3.7% from the second quarter and 11.7% from the same time in 2024.
For the third quarter, aggregate deal value totaled $331 billion, a significant 28% jump from the quarter before and an even greater 38% increase year over year.
The dealmaking follows an “air pocket” in the second quarter as general partners waited for clarity on financing conditions, a pocket that has now dissolved, according to PitchBook.
As the benchmarks in the public market rise, private buyers want to accelerate their own activity, the analyst noted.
That being said, PE exit value has dropped for the third quarter in a row, representing a nearly 40% decline from first-quarter levels. Despite the quarterly decline, mega sized exits have helped drive the full-year exit value above 2024 levels.
PE exit counts have also jumped 22.4% from last quarter, marking the first increase of its kind since 2021. This year’s exit count is expected to surpass last year’s, according to PitchBook.
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Sluggish IPO activity also picked up in the most recent quarter, though the analyst noted the government shutdown that started in October has now stalled IPO approvals.
Meanwhile, the slowed exits and distributions back to limited partners have muted the fundraising environment, with fund count up but capital raised down for the third quarter.
The challenged fundraising environment will likely remain into 2026 unless a “a sharp revival in exit flows,” occurs, according to the report.
And then there’s recession risk projections, which have stayed below 10% for 2025.
But inflation “remains a live risk that could inject volatility,” especially when considering the uncertain full impact that tariffs will have, the report reads. Current pricing in the public markets reflects a so-called “Goldilocks” scenario, meaning that the growth is strong enough to support earnings upside but sufficient to restrain interest rates, according to PitchBook.
In the current environment, the analysts forecast PE firms will stay selective on new entries and increasingly focus on fostering exits.
