Private equity is moving capital again. Large leveraged buyouts—transactions above $5 billion enterprise value—returned in the fourth quarter after a 24-month pause, with sovereign wealth funds co-investing alongside marquee sponsors in industrial and infrastructure targets. The shift marks the end of the rate-shock paralysis that froze primary dealmaking since early 2022.
The mechanics matter. Sponsors are structuring deals with 40-45% equity checks, down from the 35% standard that prevailed before Federal Reserve tightening began. Senior debt is pricing at SOFR plus 425-475 basis points for quality assets, roughly 150 basis points wider than 2021 but stable since June. Sovereign funds—particularly from the Gulf and Singapore—are taking 15-25% direct stakes in individual transactions, reducing the GP's equity burden and signaling confidence in post-rate-normalization returns. The capital is flowing into companies with contractual revenue, regulated cash flows, or vertically integrated supply chains—assets that generate predictable EBITDA regardless of consumer sentiment.
This matters because the composition of buyers has changed. Sovereign wealth funds now hold an estimated $12 trillion in assets under management, up from $8 trillion in 2019, and they are bypassing traditional limited-partner commitments in favor of deal-by-deal co-investment. That structure gives them governance rights, fee relief, and direct portfolio construction. For GPs, it provides cheaper equity and validation, but it also introduces a co-investor with different time horizons and return thresholds. A Middle Eastern sovereign fund willing to accept 12% IRR over fifteen years will underwrite different entry multiples than a ten-year institutional fund targeting 20%. The result is a bifurcated market: mega-deals with sovereign backing closing at 11-13x EBITDA, while pure-play PE remains stuck below $2 billion check sizes.
The rebound is narrow. Sponsors completed an estimated $180 billion in buyouts during the fourth quarter, compared to $95 billion in Q3 and $420 billion in Q4 2021. The volume is concentrated in six transactions, all in energy infrastructure, industrial automation, or regulated utilities. Consumer discretionary, technology services, and healthcare services—categories that dominated 2020-2021 vintage funds—remain quiet. Exit activity has not followed. Sponsors sold $62 billion of assets in Q4, barely half the quarterly average from 2017-2019, which means portfolio companies are staying private longer and funds are extending hold periods into year eight and nine.
Operators should track three events. First, the repricing of $340 billion in sponsor-backed term loans maturing between now and June 2025—these will either refinance at current spreads or force asset sales. Second, the deployment pace of the $2.8 trillion in committed but uninvested PE capital, which is now entering year four of its lifecycle and facing return pressures. Third, the behavior of European pension funds, which have begun reducing private-market allocations after years of overcommitment; if that rebalancing accelerates, it will tighten the supply of LP capital and push more sponsors toward sovereign partnerships.
The market has found a floor. It has not found a rhythm.