If private equity and family business had a relationship status on social media, it would undoubtedly be “It’s Complicated.”

At the level of facile stereotypes, the “barbarians at the gate” are the antithesis of thoughtful family business leaders, who focus on the long-term stewardship of their businesses.  The reality, however, is more complex.  As the private equity industry has matured from its brash embrace of the corporate raider persona in the 1980s, it now includes firms offering to be long-term capital partners for family businesses.  In the wide space between these two poles, many family businesses have found private equity firms to be motivated acquirers and willing lenders, and perhaps even to some degree, role models.

Even if they would rather not be connected, in 2025, what happens to private equity affects family businesses.  There has been a spate of stories in the financial press about developments in the private equity space over the past month.  In this week’s post, we look at several of those stories and discuss direct and indirect implications for family businesses.

Investing in Valuation

Let’s start with one of the more recent, and potentially explosive, stories. Private equity funds have long courted institutions with large endowments as ideal limited partners.  Elite universities like Harvard, with a reported $53 billion endowment, fit that bill and have made increasingly aggressive portfolio allocations to private equity funds.  As such universities have come under greater scrutiny in the current political environment, at least one member of Congress is pressing the SEC to look into how PE firms value their portfolio companies.

PE managers are stewards of their LPs’ capital, and report to those partners every quarter to show how they’re doing.  For someone investing in public company stocks, there’s no place to hide when the end of the quarter rolls around.  The markets tell you exactly how you’re doing.

But for the private, illiquid assets held by private equity funds, there’s no comparable market mechanism

But for the private, illiquid assets held by private equity funds, there’s no comparable market mechanism.  Instead, the PE funds must decide how much portfolio companies are worth, which leaves considerable room for judgment and differences of opinion.  Some observers allege that PE firms use the valuation process to “smooth out” at least a portion of the market volatility borne by investors in publicly traded assets.

In one sense, such interim marks don’t mean much, since the judgment inherent in the fair value measurements will fade away when the investment is sold.  The amount paid for a company and the amount it’s later sold for determine returns, not what someone estimated the company was worth in the meantime.  But that meantime can be a long time, and surely the limited partners should have reliable performance measurement to allow them to make informed asset allocation and investment decisions while holding funds.

Sound familiar?  Family businesses are illiquid assets that don’t have readily available market values, and family shareholders are often locked in for the long haul.  In a superficial sense, it doesn’t matter what the family business is worth until it’s sold.  Far better, though, for directors and shareholders to benefit from a disciplined and structured process of periodic valuations of the family business to assess management performance, evaluate portfolio allocations, and make investment decisions.  How does your family business address valuation issues?

Fostering Positive Engagement

One consequence of an inflated portfolio company value is reluctance to sell the company for the lower price that the market will actually bear. Amid generally tepid M&A markets, this means that portfolio companies linger in funds for a long time, deferring the return of capital to LPs and increasing the fees paid by LPs for the privilege of having the PE fund manage their money.  This isn’t a recipe for happy and contented LPs.

Private equity LPs don’t like being unable to access their capital for long periods of time, nor do family shareholders

Private equity LPs don’t like being unable to access their capital for long periods of time, nor do family shareholders.  If PE firms want to stay in business, they need to foster positive engagement with LPs.  One increasingly popular way to address LP liquidity needs amid a glut of “stuck” deals is the continuation fund which basically involves selling the investment to a new fund sponsored by the same PE firm rather than to a third-party buyer.

Continuation funds are somewhat analogous to “internal marketplaces” that are either formally or informally organized by family businesses, allowing shareholders who desire liquidity to sell shares to family members who desire more stock.  As with continuation funds, such internal marketplaces can present thorny issues regarding transparency and fairness.  What strategies does your family business use to provide shareholder liquidity and promote positive engagement?

Attracting New Capital

Finally, a consequence of stalled portfolio company sales is that it makes it harder for PE firms to recruit new limited partners to capitalize the next fund. Following a fundraising boom from 2021 through 2023, PE sponsors had a much harder time attracting new capital commitments in 2024, a trend that has continued and intensified through the first half of 2025.

What do the fundraising woes of private equity funds have to do with family business?  It depends on whether your family business is looking for deals of its own to accelerate growth or eyeing the exit.

• For those pursuing an M&A strategy, PE funds are likely competing for the same deals, pushing up prices. If a protracted fundraising drought ensues, acquisitive family businesses may face less competition for acquisition targets, helping to make successful deals more accretive.
• For family businesses that may be ready to sell in a few years, the fundraising slump may thin the ranks of potential acquirers, making it harder to secure top dollar in a sale. Even family businesses that sell to strategic acquirers in their industry benefit from the market discipline that PE investors bring to auction processes.

Final Thoughts

As much as they may not want to be, family businesses are not immune to the trends affecting private equity.  Whether you have questions about designing a robust valuation process, implementing a shareholder liquidity program, or need some advice on a potential transaction, give one of our senior professionals a call to discuss your needs.