It’s that time of year -- March Madness is in full swing. While fans obsess over their brackets, private equity firms are making their own strategic plays, but with much higher stakes, of course!

After two years of declines, investments and exits rebounded in 2024; a promising sign for deal-making. Investments rose 37%, while exits climbed 34%, reversing their downward trend. Compared to the anomalous 2021 peak, 2024 stacked up well over time.

But just like in the tournament, momentum alone doesn’t guarantee success. PE firms are facing several headwinds that could slow their game.

Headwind 1: The Rise of Continuation Funds

In cases where asset values don’t meet expectations or exits are delayed, general partners (GPs) are increasingly turning to continuation funds - a strategy that allows them to extend portfolio holdings while offering limited partners (LPs) an exit.

Continuation funds gained traction after the 2008 financial crisis as investors waited for valuations to recover. Now, amid a high-interest-rate environment and a growing backlog of companies seeking exits, demand has surged—by mid-2024, continuation funds held more than $50 billion in assets under management.

While not an ideal growth driver, their rise reflects the industry’s ingenuity in finding creative exit paths during market slowdowns.

Headwind 2: Declining and Slowing Fundraising

At the same time, fundraising is getting harder.

In 2024, global buyout funds raised 23% less capital than in 2023, and the number of closed funds dropped to 2017 levels. Even those that managed to close took longer - over a third had been in the market for more than two years.

With capital deployment slowing and exit paths constrained, PE firms must shift their focus inward - prioritizing operational value creation to meet investor expectations.

The Result: A Need for Proactive Portfolio Company Management

With deal-making slowing and fundraising becoming more challenging, PE firms are doubling down on portfolio performance. If exits are delayed and fresh capital is harder to come by, the best way to create value is through operational improvements, cost optimizations, and revenue acceleration.

This shift has put the spotlight on value creation teams and the need for more hands-on portfolio management. It’s no longer just about financial engineering - firms must ensure portfolio companies are executing efficiently, seizing growth opportunities, and navigating disruption.

Yet, this is easier said than done.

The Execution Challenge: Why 70% of Transformation Initiatives Fail

Even with a strong strategy in place, execution remains the biggest hurdle. Mckinsey's research finds that 70% of transformation initiatives fail, often due to talent gaps, execution missteps, or a lack of specialized expertise.

At the same time, finding the right talent has never been more difficult:

• 64% of HR leaders report it’s harder to find qualified talent than a year ago.
• 73% of hiring teams say most applicants lack the critical skills needed.
• The global talent shortage is projected to cost businesses $8.5 trillion in unrealized revenue by 2030.

For PE firms, this creates a major execution risk. If portfolio companies don’t have the right expertise at the right time, even the best-laid plans can stall, underdeliver, or fail outright.

The Solution: A More Agile, Cost-Effective Talent Strategy

PE firms need top-tier expertise, fast! However, traditional hiring models and costly consulting firms lack the agility required to execute in today’s market.  

On-demand hiring provides a smarter solution to power bold portfolio company transformation.

With on-demand hiring PE firms can gain access to a highly vetted network of independent consultants former Big 4 and MBB professionals, industry veterans, and subject matter experts who can quickly step in and drive measurable impact.