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The top-10 private equity funds have taken their largest share of US fundraising in more than a decade last year, as institutional investors rein in commitments and back larger managers amid lacklustre distributions.
These funds accounted for 46 per cent of all US private equity capital raised through September 30 — the highest share since 2014 — up from 34.5 per cent in 2024, according to PitchBook data.
The concentration has coincided with a 17 per cent increase in fundraising by the top-10 funds in North America through December 17 compared with 2024, while fundraising by the rest of the market fell 12 per cent over the same period, according to Preqin, another financial information provider.
Private equity groups, including Advent International, KKR, Thoma Bravo, Blackstone and Bain Capital, have each raised more than $10bn last year for new buyout funds, according to public filings.
The bifurcation underscores how a broader slowdown in private equity has reshaped investor behaviour. Institutional investors, led by pension funds and sovereign wealth funds, have focused their PE allocations on large managers with stable performance.
Hugh MacArthur, global private equity practice chair at Bain, said: “Investors really are feeling like they only can commit to those funds where they have to put money to work and those tend to be the larger funds that represent a safe pair of hands.”
The growing dominance of large funds in PE capital raising has come as the industry has struggled to return cash to investors amid a slowdown in initial public offerings and dealmaking. The distribution rate of buyout funds globally fell to 11 per cent in the second quarter of last year, down from 28 per cent in 2021, according to MSCI.
The underperformance has prompted many asset managers to slow or scale back their allocations to private equity.
The chief investment officer of a public pension plan with more than $20bn in assets said the fund had reduced its exposure to smaller private equity managers after struggling to “get money back” from earlier investments.
“We need some run-off from our existing portfolio,” he said.
Bain’s MacArthur said a lack of differentiation and resources was putting many PE funds at a further disadvantage in raising capital.
“If you’re in a good relationship with investors and you’ve been around for a long time, but I don’t see anything special in terms of your ability to generate excess returns, those are the folks that are in the most trouble,” he said.
By contrast, leading private equity firms are having less difficulty raising capital, even as the industry grapples with weak distributions. Scott Nuttall, co-chief executive of KKR, said the group was having “a record fundraising year”, adding that it was raising large private equity funds amid “quite a bit of demand around the world”.
Asset managers, particularly larger ones, have traditionally worked with private equity firms able to accommodate sizeable investment commitments.
Bruce MacDonald, chief investment officer of VCU Investment Management, said: “If you need to write a $1bn cheque, there are only a handful of fund groups that can actually handle that size.”
The trend has intensified as many institutional investors have begun severing ties with underperforming private equity managers and concentrating their resources on well-established groups they believe are better positioned to weather the downturn.
“We believe our private equity managers have staying power and are not going away, given their diversified asset bases and global footprints,” said an executive at a second pension plan that invested in several large PE funds last year. “If there are problems, they can be fixed.”
The executive added large PE funds tended to invest in more mature companies that can be “more stable in a challenging world”.
Yet some asset managers warned the shift towards large private equity groups could come at the expense of returns, as the sheer scale of capital makes it harder to generate excess performance.
MacDonald said while VCU did not invest heavily in private equity, it would favour small and mid-sized managers if it did, arguing returns in that segment were more dispersed and that the strongest funds there could outperform the best large-cap managers.
“There’s plenty of bad funds in the lower middle markets,” he said, referring to smaller PE managers. “But if you find a good fund, your upside is going to be a lot greater.”