Having focused this year mostly on the effects of rates and the economy on private credit, it’s time to turn our attention to private equity. One of the more surprising aspects of conversations around this topic is how PE has taken a back seat to PC, particularly regarding growth and performance of the asset class. Yet to understand the dynamics of fundraising and deployment of one you need to understand them for the other.

It’s no secret that the past few years have been marked by a sharp drop-off, some say a cessation, in private equity distributions. From 2021 to 2023, the median hold period for a private equity portfolio company grew over 20% to nearly 6.5 years. Sparked by the dramatic rise in interest rates, macroeconomic shocks such as COVID and inflation, and the corresponding slowdown in M&A, the so-called flywheel of private equity investing has been disrupted.

Over the next several weeks, we’ll explore the “distribution dilemma” from the perspectives of both GPs and LPs. With distributions in short supply, both sides of the private equity trade are compelled to make tough decisions and wrestle with new challenges. On the GP side, it seems as if only higher quality assets are transacting, while dry powder remains at peak levels.