Private Capital in Focus: Depressed Distributions, No End in Sight

Private-capital distributions remain subdued, extending a slowdown that began in the wake of 2021’s exit boom. What once looked like a brief pause is increasingly feeling like a prolonged holding pattern posing a test of LPs’ patience.

This slowdown is especially apparent in the divergence in net-cash-flow paths between vintage cohorts. While cash flows for most historical vintages follow remarkably similar paths, recent vintages are drifting from the script. The traditional cadence of investment, ramp-up and harvest appears to be slipping out of rhythm.

In some cases, as with 2015-2017 vintages, this slowdown looks like mean reversion, dragging these vintages back down after a period of unusually strong liquidity — particularly in venture capital and buyout. In others, like with 2018-2020 vintages, the drop appears more acute, suggesting not just a return to historical norms but a deeper pullback in realizations.

Structural shifts may be reinforcing the deviations from long-run averages. Strategy evolution in areas like private credit, shifting exit dynamics in buyouts, and a valuation overhang in venture and real estate all suggest that today's market environment is markedly different from past cycles. Historical analogs are becoming less-reliable guides. But the message is clear: Recent vintages aren’t just behind the curve — they’re navigating a new course.

Pooled funds’ net cash flows calculated as cumulative distributions less cumulative contributions as a fraction of the cumulative capitalization of each fund vintage year minus the same net-cash-flow number averaged over all vintages. Data as of Q4 2024 from the MSCI Private Capital Universe; all figures are calculated in USD.

Across private-capital strategies, NAVs in old funds (those that have outlived the average liquidation age of their asset class) are at or near record levels, reaching USD 250 billion in Q4 2024, according to data from the MSCI Private Capital Universe. For LPs anticipating liquidity from their more mature private-equity commitments, some unwelcome news: This rise in late-life NAV is largely attributable to distribution rates, which have fallen to record lows, rather than strong growth.

Private-equity distribution rates remain depressed, with specific implications for funds that are over the hill. The dearth of distributions is bottling up assets that were once reliable candidates for exits. This has meant fund lives that drag on longer than expected, and LPs are increasingly looking to more-mature corners of their portfolios for liquidity.

The same can’t be said for private credit and private real estate. In the former, the self-liquidating nature of loans has stabilized distributions and kept NAVs in check through funds’ golden years. For the latter, write-downs kept a lid on valuations coming out of 2020, even as transaction activity remained depressed.

For private-equity distribution rates to revert to historical norms and old NAVs to run off, there are two options: one hopeful, one not. In the optimistic scenario, deal activity recovers and a wave of exits provides some much-needed liquidity; in the other, GPs come to believe that many of these long-held assets are overvalued and accept write-downs as the cost of winding down a fund, as we’ve seen in real estate.

Data from Q1 2010 to Q4 2024. NAVs for funds older than the average liquidation age for their asset class. That is age 12 for buyout, age 15 for venture capital and age 10 for real estate and private credit. Source: MSCI Private Capital Universe

Data from Q4 2014 to Q4 2024. Annual distribution rates for buyout funds aged 11 to 12 years and venture-capital funds aged 14 to 15 years. Source: MSCI Private Capital Universe

Across private equity and private real estate, distribution rates are near historic lows, and recent market volatility may put cash flows under further pressure when we start to see data for 2025.

Historically, prolonged downturns in public-equity markets have been reflected in private-capital distributions. The dot-com bust and 2008 global financial crisis both hit distributions hard; but in recent years, distributions have remained depressed despite a rebound in public equities.

For LPs counting on distributions to fund capital calls from other private commitments, this combination of public-equity sell-offs and falling distribution rates presents a challenge: If forced to sell liquid assets to meet capital calls, it’s likely to be when prices are down.

Private credit, in contrast, has continued to distribute more or less apace, benefiting from elevated interest rates passing through to lenders. This cash-flow diversification may become an increasingly important benefit of private-credit allocations. Not everything is rosy in private credit, however: GPs are increasingly writing down loan values as borrowers struggle under the weight of persistently high interest rates and newfound uncertainty around the economy’s trajectory.

Data for global closed-end funds from the Q4 2024 update of the MSCI Private Capital Universe.

Between 2022 and 2024, buyout exits were sold at lower median-valuation multiples than assets still held in portfolios — an inversion from historical norms — despite exhibiting stronger margin growth and lower leverage. In contrast, held assets, carried at higher multiples, are grappling with contracting profitability and rising leverage, raising questions about valuations and their paths to exit.

These questions are amplified by the macro backdrop: Sticky inflation risk, higher-for-longer interest rates and growth uncertainty that could tip into stagflation. Held assets confront these macro headwinds with little balance-sheet cushion, given their narrowing since-entry margins and rising leverage.

Over the past decade, exited assets have consistently exhibited stronger median since-entry EBITDA margin growth and more contained median net-debt-to-EBITDA ratios than held assets, which reflects GPs’ tendency to prioritize exiting higher-performing assets. This selection trend proved especially relevant between 2022 and 2024, as exited assets’ robust fundamentals cushioned the impact of falling valuations. In 2025, with multiples under pressure and rising macro uncertainty, strong fundamentals may be the last line of defense against deeper erosion in exit proceeds and more strain on LPs.

Data as of Q4 2024. Ribbons represent the upper and lower bounds of the interquartile range. Shaded area highlights the years when exited assets’ median EBITDA multiple was higher than that of held assets. EBITDA multiple = total enterprise value/EBITDA. Source: MSCI Private Capital Universe

Recent vintages of private-capital funds have plenty of ground to cover if they’re going to catch up with their older peers’ cash-flow patterns, and the surprising volatility in public markets of early 2025 is unlikely to help them close the gap. Returns for older private-equity funds have been flat, but more assets are accumulating in funds that are struggling to liquidate their holdings. GPs are preferentially exiting portfolio companies with strong fundamentals, leaving an unclear path for selling those remaining assets. LPs who were hoping for a rebound in transaction activity, and thus liquidity, in 2025 may need to adjust their plans.