For much of the past decade, private equity (PE) performance has benefited from favorable market conditions. Cheap financing, easy multiple expansion and relatively short hold periods meant that even subpar execution could produce attractive returns. [1] These conditions peaked in 2021 and early 2022, when abundant capital, intense competition for assets and supportive financing markets drove deal activity and valuations to record levels. Many sponsors moved quickly to acquire companies at elevated entry multiples and underwrote ambitious growth plans.

Since then, the operating environment has become far more challenging. Higher interest rates, more volatile financing conditions and uncertain exit markets have coincided with geopolitical uncertainty, tariffs and supply chain disruption, and rapid advances in AI. Together, these forces have altered many of the assumptions underpinning investment theses developed at the height of the market.