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Private equity funds cashed out just half the amount of investments they normally sell in 2024, the third consecutive year investors’ payouts have been missed due to a deal drought.

Buyout houses typically sell 20 percent of their investments in any given year, but industry executives predict that cash payouts for the year will be about half that figure.

Cambridge Associates, a leading adviser to large institutions on their private equity investments, estimates that funds have fallen about $400bn short of paying their investors over the past three years compared to historical averages. .

The data underscores growing pressure on companies to find ways to return investors’ money, including exiting more investments in the coming year.

Companies have struggled to strike deals at attractive prices since early 2022, when rising interest rates cause rising financing costs and falling corporate valuations.

The promoters and their advisers expect that the activity of mergers and acquisitions will intensify in 2025, which may help the industry working through the so-called consultancy Bain & Co.

Several major public offerings this year including food transportation giant Lineage Logistics, aviation equipment specialist Standard Aero and dermatology group Galderma have given private equity executives the confidence to take companies public, while the election of Donald Trump added to the excitement on Wall Street.

But Andrea Auerbach, global head of private investments at Cambridge Associates, warned that the industry’s issues could take years to resolve.

“There is an expectation that the wheels of the exit market will start to turn. But it will not end in a year, it will last several years,” said Auerbach.

Private equity firms are using novel tactics to return cash to investors as assets prove difficult to sell.

They made more use of the so-called continuation funds – where a fund sells a stake in one or more portfolio companies to another fund to another fund managed by the company – to engineer exit.

Jefferies predicts there will be $58bn in continuation fund deals by 2024, representing a record 14 per cent of all private equity exits. Such funds will account for only 5 percent of all exits in the boom year of 2021, Jefferies found.

But some private equity investors doubt the industry will be able to sell assets at prices close to the fund’s current valuations.

“You have a huge amount of capital invested in assumptions that are no longer valid,” one big industry investor told the Financial Times.

They warned that a record $1tn-plus in buyouts could be hit in 2021, before interest rates rise, and more deals are brought onto the books by companies at more optimistic valuations. .

Goldman Sachs recently noted in a report that the sale of private equity assets, which have historically been made at a premium of at least 10 percent to the funds’ internal valuations, in recent years has been at discounts of 10-15 percent.

“(Private) equity in general is still over-marked, leading to this situation where assets are still holding,” said Michael Brandmeyer of Goldman Sachs Asset Management in the report.