As the $11 Trillion Industry Stalls, Experts Warn of Uncertain Future

The Federal Reserve cut rates again, but analysts say cheaper money won’t fix private equity’s (PE) massive problem. Traditionally, they’d take companies public on the stock market for huge profits, but that exit door has narrowed shut, down 46% in 2024 from the previous five-year average.

“Private equity firms are increasingly trading assets among themselves or accepting lower returns,” Kevin Khang, Vanguard’s senior international economist, noted in recent analysis. “The $11 trillion industry’s aggressive use of leverage, which once defined the model, is now being reined in, forcing a strategic rethink.”

What’s striking is how this shift is rippling through America’s retirement system, despite PE’s gains and losses often being attributed to the very wealthy. More than 34 million public sector workers, as well as colleges and universities, depend on private equity returns to fund their pensions, and these massive institutional investors now find themselves stuck holding investments they can’t sell.

Why PE Is Running Out of Exit Strategies

PE firms buy companies using borrowed money, fix them up, and sell them for profit—like house flippers but for businesses. Their traditional exit strategy was to take companies public on the stock market through initial public offerings (IPOs). But those made up just 6% of exits in 2024, and by mid-2025, total exits dropped another 12%.

Desperate for alternatives, firms are now selling companies to themselves through “continuation funds,” essentially moving investments from one pocket to another. This accounted for $41 billion worth of companies in just the first half of 2025.

Meanwhile, PE firms are having a harder time raising new money. They collected just $592 billion in the year to June—their worst showing in seven years. Despite offering big discounts to attract investors, they returned only 11% of investors’ money last year, the lowest since 2009. The math is brutal: $3 trillion worth of companies sit unsold globally.

Pension Funds Feel the Squeeze

A teacher’s pension, a firefighter’s retirement—they’re all caught in this mess. The transformation has been massive: In 2001, the typical pension owned zero private equity. By 2023, it was 10% of their portfolio, representing 20% of all pension assets.

PE delivered solid 13.5% annual returns over 10 years, but they’re often illiquid investments, meaning it’s hard to move capital out of them if they’re not exiting their positions as easily as before.

More than half of pension funds now own more private equity than they intended—what Wall Street calls being “overallocated.” When PE can’t sell companies and return cash, pension funds can’t reinvest elsewhere.

University Endowments Double Down

While pensions struggle with overallocation, university endowments are betting even bigger. Elite schools now hold 55.7% of their portfolios in alternative investments—private equity, venture capital, and real assets—up from near zero three decades ago. Major institutions like Clemson University Foundation are raising allocations from 18% to 24%, while the University of Utah tripled its private equity allocation from 10% to 30%.

Harvard maintains 39% of its $53 billion in private equity, with Yale having about half of its $40 billion in PE. They’re chasing the long-term gains over other assets—large endowments averaged 8.3% annually over 10 years versus 6.5% for smaller schools. But with universities withdrawing $30 billion annually while earning just 3.4% over three years, they’re eating into principal to fund operations.

Secondary Market Becomes the New Exit

Unable to go public or find buyers, the industry created its own solution: selling to each other. This “secondary market” hit $162 billion in 2024 and could exceed $200 billion in 2025.

This is changing how PE operates. Rather than traditional IPO exits, firms are increasingly trading assets among themselves or selling stakes to specialized secondary buyers.

Bottom Line

Private equity has long promised double-digit returns, but the math is shifting. With trillions worth of unsold companies and pensions overallocated, the risk is that what once fueled retirement security could now strain it. If exits don’t reopen soon, the industry’s biggest investors may be forced to rethink how much longer they can afford to wait.