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Loads of people are talking about the exit environment for private equity portfolio companies, which, aside from decent showings in Q1 and Q4 of 2025 and Q1 this year, have been stuck around the $100bn or less, 300 transactions per quarter-or so marks.
That has had the knock-on impact of creating quite the backlog, which now stands at a nine-year high.
The days when private equity operated in an environment where attractive exits felt almost routine, with an abundance of strong valuations, liquidity, and eager buyer, seem to be over (at least, for now), as many portfolio companies are remaining in PE ownership far longer than the traditional three-to-five-year hold period (some estimates suggest it could take years for the industry to work through its growing backlog of unsold portfolio companies). Meanwhile, mergers and acquisitions activity has softened, and valuation expectations between buyers and sellers often remain misaligned.
There is no point pretending this isn’t a challenge. Private equity firms need successful exits to return capital to investors, fund new investments, and demonstrate performance so extended hold periods can create pressure on fund managers, management teams, and limited partners alike.
However, focusing solely on the backlog risks missing a more interesting story: periods like this can separate great businesses from merely good ones because when exits become harder, value creation becomes more important.
Over the last few years, many firms could rely on multiple expansion and favourable market conditions to support strong returns. In the current environment, however, buyers are looking much more closely at operational performance. Revenue quality, margin improvement, customer retention, cash generation, and management strength matter more than ever.
This demands a lot of both PE funds and portco management teams, but it can create opportunity. Just because the exit environment is difficult, doesn’t mean it’s closed; deals are still happening, but they require stronger fundamentals than before. Businesses that can demonstrate genuine operational excellence will still attract interest because strategic acquirers continue to pursue assets that strengthen their market position.
There are encouraging signs elsewhere too. While traditional corporate M&A activity has slowed, Pitchbook says that public markets have shown renewed signs of life. A recent article from the firm suggests IPO activity increased significantly between the first and second quarters of this year, providing another potential route to liquidity for PE GPs.
Another potential benefit that can get lost in the headlines is that extended holding periods can create unexpected advantages, such as buying time to execute strategic initiatives that might previously have been deferred in pursuit of a quicker sale. Investments in technology, talent, operational efficiency, and international expansion often take years -beyond the typical holding period – to reach full maturity. A longer ownership horizon can allow those initiatives to deliver their intended value.
For management teams, this environment creates an opportunity to build businesses that are attractive not just for exit, but for the long term.
When confidence returns and transaction markets reopen more fully, the businesses – and therefore, the PE funds that own them – that have used this period wisely are likely to be rewarded. Exit markets are cyclical; periods of reduced activity rarely last forever. Capital continues to accumulate, corporate buyers continue to seek growth opportunities, and investors continue to look for high-quality assets.
Let’s all hope, though, that that the general exit market picks up sooner rather than later!
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Gregory Poapst is a Managing Partner at Fundviews Capital. Connect with him on LinkedIn here.
Fundviews Capital is a full-service end-to-end Fund Management Platform. Our platform provides a complete end-to-end solution for asset managers or wealth managers to structure, launch, operate and grow their professional investment funds. You can launch a fund in a matter of weeks, not months, and with minimal capital outlay – not only reducing the risk of launching a fund but also maximizing your chance of success. Once launched, you will find that a dedicated team of professionals is just a phone call or email away at all times, handling all aspects of the back and middle office for your fund.