Wall Street is expected to churn out its biggest year for mergers and acquisitions, bond offerings, and lending, according to Dealogic data. It could even set a record for IPOs if leading AI startups Anthropic (ANTH.PVT<\/a>) and OpenAI (OPAI.PVT<\/a>) go through with public offerings later this year. <\/p>\n But for private equity’s most tried-and-true exit route, M&A, the bulk of deal volume has come from large transactions by major corporations. Many of the companies sitting in PE funds are smaller, more sensitive to interest rates, and less related to AI. <\/p>\n Total global M&A deal volume from financial sponsors \u2014 most commonly private equity \u2014 is dropping, according to Dealogic. Through June 24, the total proceeds and number of deals have declined 11% and 8%, respectively, year to date from last year. The same measures are down by a quarter or more compared to 2021 and 2022, the industry’s busiest years this decade. <\/p>\n Purchases from that era were made with cheap debt, before the Federal Reserve’s 2022 rate hikes, “at what we now know was sort of the top of the market,” said Steven Buibish, PitchBook’s director of US private equity research.\u00a0 <\/p>\n Roughly a third of firms sitting in PE portfolios are four to six years old, according to PitchBook data. Another quarter (26.9%) has been held for seven years or longer. <\/p>\n This has created “a stalemate” between fund managers waiting for better valuations and their limited partners who want their money back, Buibish added. Private equity’s traditional playbook is now increasingly difficult to pull off. <\/p>\n “The days of easy financial engineering in terms of private equity deals \u2014 just buy it and wait for the multiple to expand \u2014 are kind of in the rearview mirror,” Ivan Farman, Bank of America’s co-head of global M&A, said in a recent reporter call. <\/p>\n Artificial intelligence has added another complication. Software providers, traditionally an attractive PE investment, are facing a reckoning of their own. Investors are still evaluating which firms will benefit from AI and which might get disrupted. <\/p>\n This has reshaped deal discussions. <\/p>\n “Every time you talk to a sponsor about a deal or they take a deal to their investment committee, one of the first questions is what is the impact of AI on this company,” Farman said in a call with reporters. <\/p>\n Funds are under a “tremendous amount of pressure to deploy capital and create liquidity for investors,” Josh Smigel, leader of PwC’s US private equity deals practice, noted in a recent reporter call. <\/p>\n The industry’s best opportunities so far this year look to be in “sectors and assets that can’t be AI’d out of existence,” like healthcare and industrials, he added. <\/p>\n