Hugh MacArthur

Expert analyst and leader within Bain & Company's private equity practice.

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Key positions and views

The private equity industry is in a deep and prolonged liquidity crisis, driven by a massive exit backlog, that will not resolve before 2027.

The historical model of generating returns through multiple expansion is defunct due to current high acquisition multiples, forcing a necessary but unproven industry-wide shift towards operational value creation.

The rise of co-investment to nearly 40% of invested capital represents a permanent structural shift that has significantly and negatively impacted GP fee economics.

The current market will trigger a consolidation where undifferentiated, mid-sized PE firms will fail, while large-scale platforms and niche, alpha-generating specialists will succeed.

Fundraising has become exceptionally difficult, as evidenced by a recent quarter with no large buyout funds closing, reflecting severe LP liquidity constraints.

Podcast consensus on MacArthur

Points of consensus

▶The private equity industry is experiencing a severe, multi-year liquidity crisis, evidenced by LP distributions falling to 2008 levels (11% of NAV) and a significant exit backlog where half of portfolio companies have been held for five years or more.Apr 2026

▶The fundamental economics of private equity have shifted, with historically high acquisition multiples (12x EBITDA) eliminating the margin for error and invalidating past reliance on multiple expansion for returns.Apr 2026

▶Structural changes, particularly the rise of co-investment to 30-40% of all invested capital, are fundamentally altering the industry by significantly reducing effective fee rates for General Partners.Apr 2026

▶The fundraising environment for private equity is exceptionally challenging, highlighted by a recent quarter where, unprecedentedly, no buyout fund closed above $1 billion, reflecting the liquidity pressure on LPs.Apr 2026

Points of debate

▶A key tension exists between the massive $1 trillion in dry powder held by buyout funds and the severe difficulty firms face in fundraising and deploying capital in the current high-multiple, low-exit environment.Apr 2026

▶There is a conflict between LPs' urgent need for distributions and GPs' inability to exit a $1.8 trillion backlog of aging assets into a market with fewer public listing options and challenging valuations.Apr 2026

▶The industry's historical success, with 50% of returns coming from multiple expansion, is at odds with the current reality where that lever is gone, forcing a pivot to operational improvements which have, on average, contributed zero to realized returns over the last 14 years.Apr 2026

▶A market bifurcation is creating a debate about viability: while large-scale firms and niche specialists are positioned to survive, there is significant doubt about the survival prospects of mid-sized firms 'trapped in the middle' without a differentiated strategy.Apr 2026

Key themes

▶The Great Liquidity SqueezeApr 2026

MacArthur details a severe and prolonged liquidity crisis in private equity, where distributions to LPs have plummeted to 11% of NAV, a level not seen since the 2008 financial crisis. This is exacerbated by a massive exit backlog, with $1.8 trillion in assets held for five years or longer, creating sustained pressure on the entire ecosystem.

This liquidity crunch creates a negative feedback loop, as LPs starved for cash cannot commit to new funds, which in turn intensifies the fundraising crisis and forces GPs to consider suboptimal exits.

▶The End of the Multiple Expansion EraApr 2026

The traditional private equity playbook of buying low and selling high is broken. MacArthur asserts that with average acquisition multiples doubling to 12x EBITDA, the historical reliance on multiple expansion—which accounted for 50% of returns over 14 years—is no longer a viable strategy.

Future outperformance will be dictated solely by a firm's ability to drive tangible revenue growth and margin improvement, a skill set that was not the primary driver of returns for much of the industry during the last cycle.

▶Structural Shifts in Capital and FeesApr 2026

The private equity model is being reshaped by the dramatic rise of co-investment, which now accounts for 30-40% of every dollar invested. This trend has directly impacted GP economics, with some firms seeing their effective fee rates cut in half over the past decade.

This signifies a major power shift toward large, institutional LPs who can demand better terms, squeezing profitability for GPs and favoring larger platforms that can accommodate complex co-investment structures.

▶A Bifurcating and Challenging MarketApr 2026

MacArthur portrays a market facing unprecedented fundraising headwinds and predicts a future of consolidation. He argues that only the largest, scaled firms and those with truly differentiated alpha-generation strategies will thrive, while undifferentiated, mid-sized firms will be 'trapped in the middle' and struggle to survive.

For investors, this means that a firm's brand and past performance may be less indicative of future success; survival will depend on having either immense scale or a genuinely unique value-creation capability.

Source episodes

Sentiment over time

Not enough data for timeline

Changes over time

Early 2000s

The number of US public company listings was more than double current levels, representing a more robust exit environment for private equity than exists today.

2008

During the global financial crisis, private equity LP distributions hit a low of 11% of Net Asset Value, a critical benchmark for the current downturn.

Circa 2009-2023

Over a 14-year period, realized private equity returns were driven 50% by revenue growth and 50% by multiple expansion, with margin improvement contributing nothing on average, setting the stage for the current strategic challenge.

2022

LP distributions fell to 15% of NAV, indicating the beginning of the significant decline in private equity liquidity.

2023

The liquidity crisis intensified as LP distributions dropped to 11% of NAV, matching the 2008 low. The total enterprise value of global buyout deals for the year was $600 billion.

Q1, Current Year

The fundraising market reached an unprecedented freeze, with no buyout fund closing above $1 billion, reflecting severe LP capital constraints.

Suggested prompts

How will the 'zero contribution from margin improvement' over the last 14 years affect the viability of PE firms that must now generate alpha through operational expertise? &nearr;Given the 50% reduction in effective fee rates for some GPs due to co-investment, what new business models or fee structures might emerge for private equity firms to maintain profitability? &nearr;What are the systemic risks posed by the $1.8 trillion in aging portfolio companies that need to be exited in a market with low liquidity and fewer public listing options? &nearr;MacArthur predicts mid-sized firms will struggle; what specific strategies could a 'trapped in the middle' firm employ to differentiate itself and survive this market bifurcation? &nearr;

Key concepts

LP Distributions 4 ep Acquisition Multiples 2 ep Co-investment 2 ep Exit Backlog 2 ep Fundraising Environment 2 ep Portfolio Scale & Value 2 ep Value Creation Strategy 1 ep Dry Powder 1 ep Private Credit Market 1 ep

Notable quotes

“If you look at the last 14 years of realized returns, you will see that roughly speaking, and roughly here, to make it simple, 50% of the returns of buyouts have been due to revenue growth. 50% has been due to multiple expansion, largely owing to the low interest rate structure that we were talking about. And zero has been from margin improvement.”

Hugh MacArthur · Hugh MacArthur - Private Equity’s Challenges and Opportunities (EP.453)

“This is not going to go away in 2025 or 2026. It's going to be continued pressure on the institutional LPs for liquidity over the course of the next several years.”

Hugh MacArthur · Hugh MacArthur - Private Equity’s Challenges and Opportunities (EP.453)

“Well, now that the average multiple is 12, not five or six, that margin for error is gone.”

Hugh MacArthur · Hugh MacArthur - Private Equity’s Challenges and Opportunities (EP.453)

“There was no fund in the buyout world in the first quarter that closed that was above billion which is the first time I can remember that happening in quite a period of time”

Hugh MacArthur · Hugh MacArthur - Private Equity’s Challenges and Opportunities (EP.453)

Report last updated: Apr 21, 2026

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