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Key takeaways

The end of the zero-interest-rate era in 2022 brought mergers and acquisitions and initial public offering markets to a virtual standstill, creating significant challenges for private equity.

Without steady cash flows from successful investments, pension funds and endowments grew reluctant to commit capital to new funds.

"One of the big challenges in private equity right now [is] a lack of monetization," Tony Tutrone, head of private markets at Neuberger Berman, told CNBC at the private equity conference IPEM in Paris.

While the market was recovering in early 2025, he said the U.S.-led trade war in April "put the brakes on everything."

"The big thing that's done is harmed fundraising because clients need the cash to come back to them so that they can invest in new vintages," Tutrone added.

AI as the primary catalyst for exits

That dynamic began shifting in the second half of 2025, with artificial intelligence acting as the primary catalyst.

Large corporations are paying substantial premiums for AI companies, providing welcome exit routes for their private equity backers.

Buoyant stock markets led by the AI boom have also reopened IPO and M&A markets.

Hala Fadel, a managing partner at private equity firm Eurazeo, pointed to her firm's recent sale of German AI firm Cognigy, which automates customer support, to publicly listed NiCE.

The deal was worth just shy of $1 billion and closed in September 2025.

"It was quite [a] sizable exit — the largest AI exit in Europe," Fadel said. "We're seeing the exit environment getting a bit more fluid these days, with large companies wanting to position themselves in GenAI and therefore looking for acquisition targets."

Public markets are also showing signs of life. Fintech giant Klarna completed a successful IPO in September 2025, raising approximately $1.37 billion on the New York Stock Exchange.

The company's shares rose 15% on their debut, closing at $45.82 after pricing above the expected range at $40 per share.

Switzerland-headquartered security firm Verisure raised approximately 3.1 billion euros on the Stockholm Stock Exchange in October 2025, marking one of the largest European listings in three years.

Shares rallied 21% above the offering price on the first day of trading.

Valuations raise alarm bells

Investors say a compelling AI narrative has become almost a prerequisite for successful public offerings, but this renewed optimism has driven valuations to levels many find alarming, drawing comparisons to the dot-com boom of the late 1990s.

"Markets are definitely frothy, both on the public side and the private side," Christian Resch, head of growth equity for Europe, the Middle East, and Africa at Goldman Sachs Asset Management, warned.

"We're seeing private companies valued at 50, 60, 100x or higher than that in terms of revenue multiples."

"You're looking at companies with big, addressable target markets, oftentimes in technologies that have some exposure to AI and generative AI to benefit from some of these megatrends," Resch said.

Beyond lofty valuations, investors are also grappling with another concern: that AI could potentially render many companies that appear to be safe bets today obsolete in the future.

"It's a risk that's really hard to price," said Miriam Schmitter, head of growth equity in Europe at CF Private Equity, relaying a sentiment she hears from colleagues. "For almost every company they're looking at, they think there's a 5% chance that business model might no longer be valid in 10 years."

Shift toward proven revenue models

To overcome the uncertainty, some investors are choosing to back companies that use AI to solve immediate and costly business problems for established large clients, rather than chase theoretical potential.

This approach focuses on companies with tangible cash flows and proven revenue rather than speculative opportunities driven by AI hype.

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