Distributions to so-called limited partners totaled 11.2% of funds’ net asset value, the lowest since 2009 and well below the 25% median figure across the last 25 years, according to the investment bank.

Higher borrowing costs, volatile markets and economic uncertainty have made it more difficult for private equity firms to exit their existing investments through sales or initial public offerings. This in turn has hampered their ability to return capital to pension and sovereign wealth funds, besides other key investors, meaning once-reliable clients are struggling to find cash to allocate new money to the asset class.

“The cash flow math at the investor level is broken,” Sunaina Sinha Haldea, global head of private capital advisory at Raymond James, said in an interview. Because investors aren’t getting money back from their existing holdings, they’re hampered in their ability to put money to work in new funds or re-top existing investments, she said.

The median holding period for a buyout firm asset is now 5.6 years, according to Raymond James, wider than the industry norm of about 4 years. 

The impact on fundraising is already visible: The median time to raise a new fund is now 21 months, compared with about 18 months just a couple of years ago, according to the bank’s research. And the number of new funds raised last year dropped 29%.

“This is the worst-ever fundraising market, worse than even during the global financial crisis,” Haldea said, adding that distributions will only likely improve in 2025 as the “tidal wave” of dealmaking forecast for this year is yet to be seen.

Still, the aggregate capital raised last year by buyout funds reached a record $500 billion, up 51% from 2022, driven by the biggest funds, Raymond James said.

A glut of fundraising in 2021 is also weighing on investors’ ability to commit to new funds, especially as the go-to private equity pitch of outsized returns is faltering. For years, pension funds could count on their returns from the asset class outpacing that of public markets. 

Now, with global stock indexes booming once again and the private capital industry grappling with structural shifts, that math isn’t as straightforward. 

Many institutional investors “are full to the gills from the 2021 private markets fundraising glut,” Jeff Boswell, head of alternative credit at money manager Ninety One, said in an interview.