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European PE funds recorded the best performance among all regions in the most-recent returns data, overtaking US vehicles.
According to PitchBook’s latest Global Fund Performance Report, European PE funds recorded a 9.1% rolling one-year horizon IRR in Q1 2025, whereas the US reported 7.7%.
The new data reversed the trend from the previous five quarters, during which US funds consistently outperformed their European counterparts. The largest disparity was seen in Q1 2024, when US funds posted a 9.4% IRR, while European funds achieved only a 5.5% return.
Part of the reason lies in the different pace of monetary easing in the two regions.
The European Central Bank has cut rates eight times since January 2024, while the Federal Reserve has lowered them five times over the period. The cheaper borrowing costs helped boost deal and exit activity, thereby improving PE returns.
The consistently lower valuations in Europe, compared with those in North America, also attracted investors to look across the pond.
Globally, vehicles that raised between $250 million and $500 million performed best in Q1, showing a 9.7% IRR. It was the only size bucket to see improved performance, due in part to the relative nimbleness of capital deployment and lower debt dependence.
This represents a shift from the previous three quarters, during which funds under $250 million performed better on average.
Overall, PE funds globally posted a 7.5% IRR in Q1. However, a short-term negative return of -1% in Q2 is anticipated, as macroeconomic volatility remains a significant headwind. This could potentially be turned around by the strong dealmaking in Q3 and further rate-cut expectations from the Federal Reserve.
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