European private equity funds have overtaken their US counterparts for the first time in more than a year, due to cheaper borrowing costs and increased deal and exit activity.
According to PitchBook’s latest Global Fund Performance Report, European PE funds recorded a rolling one-year internal rate of return (IRR) of 9.1 per cent in the first quarter of 2025, outpacing the 7.7 per cent recorded by US vehicles.
The shift reverses the recent trend, which has seen US PE funds outperform their Europe counterparts for the previous five quarters. The outperformance was widest in the first quarter of 2024, when US funds posted a 9.4 per cent IRR while European funds managed just 5.5 per cent.
PitchBook says this reversal has been driven in part by divergent monetary policies. The European Central Bank has cut interest rates eight times since January 2024, compared with five reductions by the US Federal Reserve over the same period.
Cheaper borrowing costs have fuelled both deal-making and exit activity across Europe, improving PE returns.
Meanwhile, persistently lower company valuations on the continent continue to attract international investors seeking better entry multiples than those available in North America.
Across all regions, mid-sized funds – those raising between $250m and $500m – delivered the best results, achieving a 9.7 per cent IRR in Q1 2025. It was the only fund size segment to see improved performance, with PitchBook attributing the resilience to greater agility in capital deployment and reduced reliance on leverage.
This marks a change from the previous three quarters, during which smaller funds (under $250m) had typically outperformed.
Globally, private equity funds generated an overall 7.5 per cent IRR in the first quarter. However, PitchBook warned that a -1 per cent short-term return could materialise in Q2 amid ongoing macroeconomic uncertainty. Analysts expect a recovery later in the year, buoyed by stronger deal flow in Q3 and further anticipated rate cuts from the Federal Reserve.
