The End of Private Equity's Golden Age
Why the next chapter will look nothing like the last
Yale University's endowment—the institutional pioneer that legitimised alternative investments through David Swensen's revolutionary model—is reportedly nearing the sale of $2.5 billion in private equity holdings, almost 5% of its total assets under management.
Harvard and other endowments are following suit, whilst realisations at the six largest publicly traded private equity firms plummeted 50% year-on-year in Q1 2025, falling to $11.1 billion from $22.4 billion the previous quarter.
When the very institutions that created the playbook for alternative investing head for the exits, we must ask: are we witnessing another market cycle, or something more fundamental?
The signs point to structural exhaustion of a 50-year model. Private equity emerged when industrial conglomerates hit their limits in the 1970s, serving as the financial innovation that imposed capital discipline on bloated corporations in the plateauing age of oil, automobiles, and mass production. Now private equity faces its own structural ceiling, even as it manages record assets of $4.7 trillion globally in the buyout category alone.
The symptoms are everywhere: hold periods stretching beyond seven years, continuation vehicles proliferating to avoid genuine exits, and a sudden pivot to retail investors just as sophisticated institutions retreat. Gabriel Caillaux, General Atlantic's co-president, captured the mood at Berlin's SuperReturn conference: “I can't remember in my 20 years of growth equity investing, not having an IPO window open for this kind of long period of time... that is obviously calling us to rethink not strategy, but some tactical aspects.” Daniel Lopez-Cruz of Investcorp was even blunter at the same event: “The IPO market for all intents and purposes is closed for private equity companies.”
As detailed in my Late-Cycle Investment Theory, my view is that we're now experiencing the 1970s of the age of computing and networks, a phase of maturity where economies plateau and focus shifts to consolidation rather than innovation. Such a major inflection point is bound to affect private equity. There's a very real possibility that we're witnessing the end of private equity's golden age.
1/ To understand where we're heading, we must first understand how we got here. Back in the 1970s, private equity wasn't inevitable—it was a solution to specific late-cycle problems.
In 1976, Jerome Kohlberg Jr. left Bear Stearns to pioneer leveraged buyouts. He had already developed what he called “bootstrap investments” during his time at the firm as head of corporate finance, but felt constrained by the setup there and didn't feel he enjoyed enough support for what revealed itself as an extraordinarily profitable business.
Kohlberg's approach was revolutionary in its simplicity: he and his team targeted family businesses facing succession crises during the twilight of the mass production paradigm. These firms were too small for public markets but ripe for the operational improvements that characterise late-cycle consolidation. He would borrow money to acquire them, implement operational and financial improvements to make the business leaner and more capital-efficient, and repay the debt with the business's cash flows, thus securing an incredibly high return on the small portion of equity capital committed to the deal.
Kohlberg, who passed away in 2015, was of course the first “K” in KKR. After leaving Bear Stearns, he co-founded the firm with his former colleagues Henry Kravis and George R. Roberts, transforming his pioneering approach into an industry. The model thrived despite adversity, demonstrating the power of late-cycle innovation.
When interest rates hit 20% in 1981, KKR still completed deals. Why? Because inefficiency was everywhere. Conglomerates had created bloated subsidiaries that violated every principle of focused management. Family businesses lacked professional systems. Financial engineering could unlock immediate value from decades of accumulated fat. Crucially, the high-yield bond market, built up through the strong will and sheer force of Michael Milken alone, provided these newly minted buyout firms with access to vast reserves of debt capital.
The formula was elegant and perfectly suited to its era: buy undervalued assets, impose operational discipline, leverage returns, and sell quickly to the next wave of consolidators. Surfing this wave of consolidation, tracking inefficiency, and imposing capital discipline, top-quartile funds such as KKR’s generated net IRRs exceeding 25% from 1980 to 2000. This wasn't financial alchemy—it was capturing genuine inefficiencies in an economy transitioning between technological paradigms.
But according to my Late-Cycle Investment Theory, every technological revolution follows a predictable arc: chaotic Installation, financial bubble, productive Deployment, and finally, a maturity phase where the fog of uncertainty has lifted and optimisation, not disruption, becomes the focus. Late-cycle innovations, as private equity was back in the 1970s, eventually exhaust their opportunities. The very success of private equity eliminated the conditions that made it successful.
2/ Today's private equity faces what I call the velocity crisis—a fundamental breakdown in the circulation system that sustains any financial ecosystem.
Without exits, there are no distributions. Without distributions, limited partners cannot recommit capital. Without fresh commitments, fundraising stalls even for blue-chip firms with decades of outperformance. This breakdown threatens not just individual firms but the entire ecosystem that has grown around private equity.
The numbers reveal the crisis's depth. Exit-to-investment ratios have fallen below 0.5x, meaning private equity firms are selling less than half of what they're buying. Unrealised portfolios have ballooned to $3.2 trillion, creating a massive overhang that distorts the entire asset class. This isn't temporary market dislocation but structural breakdown.
Rob Lucas, CEO of CVC Capital Partners, recently warned at SuperReturn of rising consolidation “as firms find it increasingly difficult to return capital to investors amid market instability.” The arithmetic is unforgiving: firms that cannot exit investments cannot demonstrate returns. Those that cannot demonstrate returns cannot attract fresh capital. Those that cannot attract fresh capital cannot make new investments. The velocity crisis becomes self-reinforcing, exactly as late-cycle theory predicts when industries reach saturation.
This paralysis has profound implications for the broader financial system. Private equity has become deeply embedded in global capital allocation, managing pension funds, sovereign wealth, and institutional savings. When the circulation stops, these institutions face their own crises: promised returns fail to materialise, liability matching becomes impossible, and the diversification benefits that justified private equity allocations evaporate.
Something has to give. Private equity firms can slash fees to compete for scarce capital, pivot to new asset classes where inefficiencies remain, or accept that their golden age has ended and consolidate around a smaller, more sustainable model. Each path represents a fundamental departure from the growth trajectory that defined the industry for decades.
Apollo's Marc Rowan recently admitted this reality: “I don’t think the strategies that we have employed over the past 40 years are going to work going forward.” This represents more than cyclical adjustment—it acknowledges that the fundamental value proposition supporting the private equity model has disappeared.