Investors remain upbeat about private markets’ performance and potential
The latest Preqin Quarterly Updates show a rebound in fundraising, investment, and exit activity across most private capital asset classes. But while green shoots are visible, the market is not in full bloom.
Values recovered strongly in key markets such as private equity, where the aggregate value of deals was up 46% and the aggregate value of exits up 47% compared with the preceding quarter. But this increase came from a smaller number of larger deals, with the number of new deals down 9% and exits up just 2%, indicating that a broad recovery of the deal-making market remains elusive while interest rates and inflation remain stubbornly high.
On the plus side, institutional investors surveyed for Preqin’s upcoming Investor Outlook (published in August) are generally satisfied with the performance of their alternative investments, with the vast majority planning to either increase or maintain allocations over the next 12 months.
Private equity
Global private equity fundraising reached $151.5bn in Q2 2024, compared with $178.0bn in Q1, a 6% decrease. North America-focused funds took the lion’s share of fundraising in the second quarter with $105.4bn raised, a 24% increase on the previous quarter.
On a more positive note, deal and exit value both increased. The number of exits was up just 2% at 505, but their aggregate value surged 47% to $88.7bn. The pattern was the same for new investments, with a 46% increase in the value of deals to $120.1bn, despite a 9% decrease in the number of deals to 1,733.
Victoria Chernykh, AVP in Preqin’s Research Insights team and lead author of Private Equity Q2 2024: Preqin Quarterly Update, said that although the poor performance by 2021 and 2022 vintage funds may impact future returns, investors were more positive towards the asset class than they were 12 months ago.
Venture capital
The aggregate value of VC deals in Q2 2024 globally increased 13% to $69.4bn, up from $61.2bn in the first quarter. This uptick was driven by the IT sector, where aggregate deal value rose from $24.5bn to $34.8bn in Q2 2024, a 42% increase.
Exit activity also increased, with 223 exits generating an aggregate value of $41.6bn. However, this is still well below the five-year quarterly average of $82.4bn, as higher interest rates – especially in the US – continue to affect exits and fundraising.
Fundraising remains muted, with 200 VC funds closing globally in the quarter and raising $25.6bn, down from 255 and $26.2bn in Q1 2024. Investor interest remains unchanged but high, with 83% of investors expecting to either increase or maintain their VC allocations over the coming 12 months, according to Preqin’s June 2024 Investor Survey. This is despite a current valuation decline in the asset class, where one- and three-year horizon internal rates of return (IRR) are at -5.3% and 5.0%, respectively.
Private debt
North America-focused private debt funds raised $39.9bn in the second quarter, representing 79% of total funds raised globally in the quarter. Direct lending continues to be private debt’s largest strategy, accounting for $44.5bn (88%) of fundraising in the asset class in Q2 2024.
The average closed fund size hit $1.5bn this quarter, a five-year high. However, the number of closed funds dropped to 33 in Q2 – the lowest in at least five years.
In Preqin’s latest investor survey, which will be published in August, 86% of surveyed investors said private debt had met or exceeded their expectations and 92% said they would be keeping or adding to their private debt positions in the next 12 months.
Infrastructure
Unlisted infrastructure’s fundraising softened in the second quarter, with a 14% drop to $33.8bn compared with Q1. Final closes by infrastructure funds raised $18.4bn at final close in Q2 – just 55% of the quarterly average of $33.7bn since Q2 2019.
North America and Europe-targeted capital accounted for over 90% of total funds raised in Q2, but long-term investor signals suggest this regional preference may shift. The proportion of searches for APAC funds on Preqin Pro by infrastructure investors over the past 12 months jumped from 24% to 37%. North America and Europe both saw a drop in fund searches over this time, as higher interest rates make risk-adjusted returns less competitive in both regions.
Deal-making rose during the latest quarter, with aggregate deal value reaching $61.0bn over 410 deals, a slight increase from the five-year low in Q1 2024 when 520 deals had only $55.8bn in aggregate deal value.
Dry powder as a proportion of infrastructure AUM is currently at a long-term low of 27%, down from 36% two years earlier. Although this is reflective of the tough fundraising environment, it also reflects growth in unrealized value in the asset class, as the $376.0bn currently held in dry powder is the highest-ever amount.
Real estate
Real estate fundraising trod water in the second quarter, with the value increasing slightly from $32.4bn in Q1 2024 to $33.0bn in Q2. Deal flow also saw an upward trend, as total transaction value rose by 15.5% from $30.9bn in Q1 to $35.7bn in Q2. In Europe, although deal volume contracted by 15.8% quarter-on-quarter, deal value more than doubled to $7.9bn, the highest since Q2 2022. Globally, the most transacted property type in the second quarter was residential, which accounted for $7.5bn, or 23%, of the total deal value.
Real estate debt recorded the strongest quarter-on-quarter growth in fundraising, which increased from $2.3bn in Q1 2024 to $9.1bn in Q2. Since the start of 2019, the proportion of capital raised by real estate debt funds has only been higher twice, in Q2 2020 and Q2 2022, reflecting current demand from investors.
Hedge funds
APAC-focused hedge funds outperformed North America- and Europe-focused funds in Q2 2024. APAC-focused funds had a net return of 3.5% on average. North America-focused funds returned 0.2%, while Europe-focused funds returned 1.4%. This is attributed to equity funds, which were some of the best-performing funds in the quarter, bolstered by public equity market gains in Taiwan and India.
Equity market-neutral strategies were the top-performing relative value strategy, and better than most hedge fund strategies overall, with a 2.4% net return in Q2 2024.
Preqin’s All Hedge Fund Index rose by 0.2% in Q2 2024, compared with 5.8% in Q1 2024 and 7.2% in Q4 2023. Inflation concerns persisted early in Q2 2024, with the US Consumer Price Index remaining steady, leading to continued uncertainty about future rate cuts.
Relative value strategies had the highest net return in Q2 2024, at 2.1%. Multi-strategy and credit strategies also performed well, with net returns of 1.4% and 1.1%, respectively. Macro strategies were the only top-level sub-strategy to see a net loss overall, at -0.2%. However, 12-month returns from June 2023 to June 2024 show that macro strategies and equity strategies were the best performing, at 12.9% and 11.1%, respectively.
APAC
APAC-focused private equity fundraising rose from $11.5bn in Q1 2024 to $14.8bn in Q2 2024. Exit volume and values are stabilizing, as buyout activity rose slightly in Q2 compared with Q1, with total deals rising from 210 to 223 and aggregate deal value rising from $8.3bn to $16.3bn respectively.
Aggregate VC capital raised in APAC increased from $2.8bn in Q1 2024 to $4.5bn in Q2 2024, led by China-focused funds, namely Sequoia Capital China Venture Capital Fund, which raised $2.5bn by final close in Q2 2024. India emerged as a bright spot for VC deals value, reaching a high of $4.0bn by the end of Q2 2024.
Angela Lai, VP, Head of APAC and Valuations at Preqin Research Insights, notes that Asia-regional funds have become prominent due to their diversification benefits. As investors move away from China-focused funds, private capital fundraising focused on China fell to $3.4bn, a sharp fall from the quarterly average of $45bn from 2019 to 2021.
These summaries are taken from the Preqin Quarterly Updates, available for Insights+ subscribers.
The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.