The Markets March 4, 2025

Private Equity on Comeback Trail for 2025, Says McKinsey

In 2024, private equity returns declined to 3.8%, the third consecutive year in which the public markets outperformed the asset class, according to the consulting firm McKinsey & Co.

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The last few years have been challenging for private equity, but the asset class has started to emerge from the fog, according to a new report from consultancy McKinsey & Co.

In 2024, private equity returns declined to 3.8%, the third consecutive year in which the public markets outperformed the asset class. Buyouts returned 8.5%, while private growth equity returned 2.7% between the fourth quarter of 2023 and the third quarter of 2024. During the same period, the S&P 500 returned 36.3%.

The private equity asset class has been a strong performer in the long term: Buyouts returned annualized gains of 14.1% and 13.4% over the past 10 and 25 years, respectively. Growth equity and venture capital returned 14.5% and 10.7%, respectively, during those periods, and the S&P 500 returned 13.5% and 8.2%, respectively. Stronger long-term returns, despite a few weak years, likely explain limited partners’ continued support for the asset class, which is also considered a diversifying asset, according to McKinsey.

The IPO market remains tough: In 2024, only 5% of PE-backed exits were made through initial public offerings, compared with sales to corporates, which comprised of 50% of exits, and sponsor-to-sponsor transactions, which made up 45% of exits.

McKinsey also observed a rebound in dealmaking and the return of distributions to LPs. Private equity dry powder also decreased, fundraising continues to be challenging, and LPs are increasingly interested in general partner stakes.

Distributions Up, Dry Powder Down

For the first time in nearly 10 years, distributions from private equity managers to their LPs outpaced capital contributions from LPs to managers. The first half of 2024 saw net distributions to LPs for the first time since 2015.

“After a rough 2022 and 23, we saw distributions pick up in the first half, putting 2024 on the track to the best year since 2015, where distributions to LPs outpaced capital contributions,” says Alexander Edlich, a senior partner in McKinsey’s private equity and principal investors practice. “You saw a lot of resilience shining through.”

The ratio of distributions to capital calls was 1.2 in the first half of 2024, while in 2015, the last year in which distributions were greater than capital contributions, the ratio was 1.3.

Dry powder is also decreasing, falling 11% year over year. Dry powder inventory—the amount of capital available to GPs as a multiple of annual deployment—fell to 1.89 years from 2.02 years in the first half of 2023.

“The dry powder we estimate in the first half of the year was about $2.1 trillion,” Edlich says. “This was down from $2.3 trillion in the first half of 2023. It’s still a lot of dry powder, but that reflects the interest in private equity and the conviction that LPs have in it.”

Fundraising Environment

For private equity firms, fundraising was down for a third year in a row, according to McKinsey: a drop of 24% year over year to $589 billion for traditional commingled vehicles. Fundraising hit a high in 2021, when private equity firms raised $952 billion from LPs.

Fundraising is also taking longer: Funds that closed in 2024 were open for an average of 21.9 months, a record high. By comparison, the average was 19.6 months in 2023 and 13.1 months in 2018. The number of private equity funds closing also fell to the lowest level in a decade.

“For a long time, you had the financing environment be quite stuck.” Edlich says. “You had an LP strike, where they weren’t ready to commit until they received their money back.”

While distributions are up, they remain lumpy, the McKinsey report stated, and LPs are choosing to wait for distributions before committing to new funds. But there is good news ahead, especially as distributions return.

“We do hear a lot more excitement from LPs to recommit to the market now that exits, in particular, have been unstuck,” Edlich says.

In a survey of LPs, McKinsey found that 30% of respondents plan to increase their private equity allocations over the next 12 months, “even as public markets outpace [private equity],” Edlich says.

Fundraising does appear more resilient, particularly in the middle market. Funds that range in size from $1 billion to $5 billion in assets under management were the only funds that had a net gain in fundraising, increasing 0.5%. In the first half of 2024, for reference, private equity firms with at least $10 billion in assets saw fundraising fall 42.8%. For firms with less than $250 million in assets, fundraising fell 35.9%.
Compliance March 4, 2025

What DOL Layoffs Could Portend for EBSA’s Future

Probationary employees and the head of the agency’s division of employee ownership were recently terminated amid President Donald Trump’s efforts to reduce the federal workforce.

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With reports that probationary employees at the Department of Labor’s Employee Benefits Security Administration were laid off recently and with potentially more cuts to come, the already understaffed agency may be challenged to enforce existing regulations, finalize guidance regarding the SECURE Act 2.0 of 2022 and aid plan sponsors and retirement service providers.

The exact number of probationary employees terminated from their roles at EBSA is unknown. Hillary Abel, who was appointed as the head of the Division of Employee Ownership in July 2024, was terminated as part of the administration of President Donald Trump’s efforts to drastically downsize the federal government.

It is also unclear whether the DOL’s ERISA Advisory Council has been affected by President Donald Trump’s recent executive order to eliminate federal advisory committees. The President ordered on February 19 that within 30 days a list of “additional unnecessary government entities and advisory committees” be submitted to the President for termination.

Lisa Gomez, the most recent EBSA head and former assistant secretary of labor, previously expressed concerns about EBSA’s limited budget and staff. In September 2024, Gomez and Timothy Hauser, deputy assistant secretary for program operations, said EBSA had a staff of 850 people, which they argued was inadequate for an agency required to look out for the interests of 150 million people participating in retirement plans, health plans and disability plans.

At the time, Gomez said if EBSA did not receive supplemental funding from the federal government, it would have to reduce its staff by 120 full-time employees across its three regional offices.

Gomez, who spoke recently with PLANSPONSOR, says when she was EBSA head, she would often call it a “scrappy agency,” as it always needed to be creative about how it used its limited funds. She argues that EBSA is not an agency with room to cut staff or funding.

She says recent staff cuts will likely cause issues for the Ask EBSA Hotline, a toll-free number plan sponsors, recordkeepers and other providers can use to ask questions of benefits advisers. Gomez says when she was in office, there were only about 100 benefits advisers nationwide. In the 2024 fiscal year, Gomez says these advisers helped recover $544 million for plans and participants from informal complaint resolutions.

“[Reduced staff] is going to result in longer wait times for people calling, longer queues for people to wait in line for an actual person to get on the phone [and] longer times to respond,” Gomez says.

At the beginning of the year, EBSA announced amendments to the Voluntary Fiduciary Correction Program, providing employers and plan administrators with more efficient ways to voluntarily correct compliance issues in retirement, health and other employee benefit plans. But Gomez says there need to be staff members at EBSA to help process these corrections, and she says these staff members are already under a lot of constraints.

“This is a program that EBSA does not have to offer … but it’s helpful,” Gomez says. “It’s going to be something where there’s more delays for people, and plans are already complaining that it takes too long to get things done.”

Gomez adds that the agency also had a project in place to review and improve Form 5500s, but it had to be put on hold due to the lack of resources and time.

While the agency was able to launch the Retirement Savings Lost and Found database just before the change in administration, Gomez says it was unable to finalize automatic portability regulations that many in the industry are anticipating. Ultimately, she says it is up to the Trump administration to decide if it wants to go forward with these projects and evaluate if staff members can devote time to them.

EBSA is also involved in investigating plans, and Gomez says during her tenure, the agency received inquiries from Congress asking why the investigations were taking so long. At the time, she says, only a portion of its staff were handling these investigations, and there was about one investor for every 13,000 plans that EBSA regulated. She says this backlog of investigations will likely continue amid more staff cuts.

In addition, more mandatory deadlines from the SECURE 2.0 continue to come up each year, and Gomez says additional guidance on the various provisions may be delayed by the lack of staff and resources.

It is possible also EBSA’s budget will be cut further, as there have been proposals from Republicans to reduce both EBSA and the DOL’s budgets. Congress faces a March 14 deadline to extend funding for the federal government in the current fiscal year to avoid a shutdown. In addition, the House Budget Resolution, passed along party lines this week, calls for some $2 trillion in federal spending cuts, in part to offset the cost of $4.5 trillion in planned tax cuts.

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