I. A change of dimension: an industry that has changed in nature since 2000
In 2000, global private equity represented a few hundred billion dollars of assets under management, concentrated mostly in the United States, served by pioneering institutional investors — the large American university endowments, avant-garde public pension funds — and structured around a logic of alpha sought in still-inefficient markets. Twenty-five years later, the industry has changed in nature, not merely in size.
Private equity funds under management have been multiplied by nearly 14, reaching $13.6 trillion in 2024. More telling still is the proportion: 87% of companies generating more than $100 million in revenue in the United States — and 96% in Europe — are today “private”, that is, outside the listed markets. Private equity’s playing field is no longer at the margins of capitalism; it forms its main backbone.
II. The dynamics of allocations: the structural engine of growth
The key to understanding this expansion is not to be found in private equity’s intrinsic performance — real but disputed — but in a profound transformation of institutional investors’ allocation behaviour. It is this mechanism that is systematically underestimated.
In 2007, before the great financial crisis, equities represented about 60% of the allocations of the large American public pension funds. By 2021, that proportion had fallen below 50%, offset by significant growth in allocations to alternative assets (private equity, private credit, real estate, hedge funds and other assets).
This rotation is not a cyclical accident. It reflects a structural conviction: in a prolonged low-rate environment, unlisted assets are the main route to a genuine return premium. Over the period 2000–2023, US public pension funds’ private equity allocations produced an annualised return, net of fees, of 11.0%, outperforming by 4.8 points the 6.2% that an equivalent investment in listed equities would have generated (ref.: Cliffwater LLC, Long-Term Private Equity Performance: 2000 to 2023, 7th edition, 26 January 2024).
The private equity holdings of the pension funds in the sample studied rose from about $60 billion (4% of assets) to about $500 billion (15% of assets) between 2000 and 2023. Put differently: private equity’s share of institutional portfolios nearly quadrupled in two decades.
The movement is not weakening. Global institutional allocations to private markets reached a record 12.5% of overall portfolios in 2025. Among the institutions surveyed, 88% plan to increase or maintain their private markets allocations over the next two years. 89% of large US public pension funds now invest part of their portfolio in private equity.
In Europe, a still-productive structural under-allocation. Measured as a percentage of GDP, European private equity and venture capital assets amount to 8%, against 17% for the United States. This asymmetry, often read as a lag, is also an opportunity: it means that convergence towards American allocation levels will continue to generate substantial flows to European GPs for many years to come.
III. The mechanics of multiples: when capital abundance sets the price
Here is the central thesis, and it deserves to be stated precisely: the growth of allocations and AUM has not merely developed the PE industry — it has structurally driven up the price of entry assets.
In the early 2000s, median acquisition multiples in Europe stood at around 6 to 7 times EBITDA. In 2021, the Argos Index reached its peak at 11.6x. In absolute terms, the amplification is considerable: the median price of a company bought in a buyout has practically doubled in multiple, independently of any improvement in operating fundamentals.
The logic is elementary: a growing inflow of capital seeking deployment across a relatively stable universe of assets mechanically pushes prices up. Recent years have seen a structural convergence: a prolonged period of ultra-low interest rates made LBOs more attractive, dry powder reached historic levels, and many private equity funds evolved into diversified conglomerates.
Mechanically, GPs with more capital to deploy have had to pay more to access the same targets. The rise in multiples is therefore not a market anomaly — it is the arithmetic expression of a structural supply/demand imbalance of capital.
IV. The amplifying effect of equity markets
The growth of European private equity AUM cannot be explained by capital flows alone — new subscriptions and reinvested distributions. It also owes much to a less visible but equally powerful mechanism: the structural interaction between listed markets and the valuation of private portfolios. Over most of the 2012–2024 period, this interaction worked as a double-action amplifier, simultaneously inflating the value of assets held and the allocation capacity of institutional investors.
Portfolio valuation by reference to listed markets. Private equity managers value their holdings according to the IPEV guidelines (International Private Equity and Venture Capital Valuation Guidelines), which in practice prescribe listed-comparable multiples as the primary method for mature companies. Portfolio value at fair value — which constitutes the bulk of AUM as reported by Invest Europe — is therefore mechanically correlated with equity market valuation levels. The exceptionally prolonged bull market of European and global equities between 2012 and 2021 — the Euro Stoxx 600 more than doubled over the period — thus continuously revalued fund portfolios upwards, independently of the underlying operating performance of the companies held. This partly explains why portfolio value at cost, a more stable indicator based on entry prices, grew more slowly than overall AUM: a non-negligible fraction of the appreciation reflects the compression of discount rates and the expansion of market multiples rather than intrinsic value creation.
The denominator effect, a pro-cyclical allocation factor. The second amplification channel runs through institutional investors’ balance sheets. Pension funds, insurers and sovereign funds manage their allocations as a percentage of total assets. When listed markets rise, total portfolio value increases, which — with unlisted assets unchanged — mechanically reduces private equity’s relative share and creates additional investment capacity. Conversely, when markets correct, listed assets fall faster than private valuations, which are updated with a quarterly lag, producing what the profession calls the “denominator effect”: an apparent over-allocation to private assets that temporarily constrains new subscriptions. This mechanism played out fully in both directions over the period studied. The 2012–2021 bull market regularly freed up allocation capacity among LPs, feeding the subscription flow that carried AUM from €555 billion in 2013 to €873 billion in 2021. The brutal correction of 2022, which saw the Nasdaq lose nearly 33% and the Euro Stoxx 600 fall 13%, triggered the negative denominator effect, slowing fundraising in 2023 and contributing to more moderate AUM growth (+7% in 2024 versus +9% in 2023 and +15% in 2022).
The paradox of 2022–2024. The resilience of AUM in the face of rising rates deserves particular attention, for it illustrates the limits of the correlation with listed markets. Between early 2022 and late 2023, central banks raised policy rates at a pace unseen in forty years. In theory, this should have compressed private valuations — via higher discount rates — and discouraged subscriptions — via competition from bonds offering newly attractive yields. That scenario only partially materialised. On the one hand, managers exercised a degree of discretion in marking down their valuations, using the flexibility left by the IPEV guidelines to smooth the adjustment over time. On the other, accumulated dry powder — €410 billion at end-2023, or 86% of the total invested over the previous four years — constituted a structural base of AUM independent of market fluctuations, since capital subscribed but not yet called is not exposed to valuation volatility. It is this historically high stock of dry powder that largely explains why AUM continued to grow in absolute value even amid a partial freeze in transactions.
A structural dependence to watch. Amplification by equity markets raises a fundamental question for assessing AUM growth: what share of it reflects a real expansion of the industry — more productive capital invested in more companies — and what share is merely the accounting reflection of favourable markets? The answer is not simple. Invest Europe publishes portfolio data both at fair value and at acquisition cost, which allows the two effects to be distinguished. Between 2019 and 2023, the portfolio at cost rose from around €480 billion to €744 billion — a 55% increase in real investment volume, independent of market effects. The fact remains that headline AUM dynamics structurally embed a pro-cyclical component that must be isolated analytically, so as neither to overestimate the industry’s real depth in phases of market expansion, nor to underestimate it in phases of correction.
V. Maturity in question: an industry under strain
The industry has come of age. Private equity now represents 75% of the total value of private markets and has outperformed listed markets by 4.8% per year in annualised returns since 2000 (Private Equity Insights). It is no longer a peripheral alternative asset class — it is a structural component of global institutional portfolios. But this maturity carries its own tensions, four of which deserve precise analysis.
1. A structural decline in fundraising. The Bain 2026 report states it without ambiguity: we are entering a world where low prices, cheap debt and easy multiple expansion have disappeared for the foreseeable future. Invest Europe’s data illustrate the reversal: after the 2022 record of €195 billion, European fundraising fell back to €137 billion in 2023 and €120 billion in 2024. The cause is a well-identified mechanism — LPs only re-allocate what they receive. And distributions have slowed dramatically. As long as funds do not return cash to their investors, the latter have no fresh capital to commit to new funds. It is an arithmetic constraint, not a crisis of confidence in the asset class.
2. Blocked exits: the crux of the problem. The source of the blockage can be identified precisely. While global buyout AUM has tripled in ten years, distributions as a percentage of NAV have fallen from an average of 29% between 2014 and 2017 to just 11% today (Bain & Company). Private equity is now too big for its own exits: IPO markets cannot absorb the volumes of disposals available, strategic buyers face their own valuation constraints, and financing costs of 8–9% reduce the number of financial buyers able to justify asking prices. Bain estimates the unrealised value currently held in portfolios at $3.8 trillion, with average holding periods drifting towards seven years — well beyond the historical norm of five. The formula “12 is the new 5” captures this reality: EBITDA growth of 10–12% per year is now needed to reach a 2.5x MOIC over five years, where 5% sufficed a decade ago.
3. The rise of the secondary market: partial solution, structural signal. Faced with the blockage of traditional exits, the secondary market has become the safety valve. Secondary funds raised $102 billion in 2024, bringing total AUM to $601 billion, and GP-led continuation funds have quadrupled in number over five years (Bain & Company). Co-investments are becoming widespread, and semi-liquid vehicles are multiplying to accommodate wealthy individuals’ capital. This rapid development can be read two ways: it testifies to the industry’s growing sophistication in liquidity management, but it also reveals that the natural exit routes — IPOs, trade sales — no longer function at the scale required by the mass of assets under management. In volume terms, secondaries remain an insufficient fraction of the problem.
4. Concentration and the erosion of large funds’ returns. The industry’s bipolarisation is deepening. In a difficult fundraising environment, LPs are concentrating their allocations on the mega-funds of established houses: in Europe, the top five funds captured more than half of the capital raised in 2023 (Moonfare). But this concentration at the top does not solve the performance problem — it displaces it. The large houses, forced to deploy ever-greater volumes across an increasingly efficient large-cap universe, see their alpha mechanically compressed. Private equity’s historical outperformance of listed markets was partly a market-inefficiency premium: that premium erodes as capital pours in and as due diligence and value-creation practices converge with those of listed markets. This is precisely why the European mid-market — less efficient, less competitive, structurally supplied by family business transmissions — retains alpha characteristics that large-cap has lost.
Coming next
VI. European focus: catch-ups, lags and specific features · VII. A serious academic debate: Phalippou’s critiques · VIII. Conclusion: towards a new value-creation regime