Preqin quarterly report shows private equity deals up 20% from Q4 2022 to $147.6bn
Interest rate and economic outlook adding to brighter private equity sentiment
Exit environment for venture capital and real estate remained depressed into year end
January 31, 2024 (Preqin News) – An increase in private equity deal values in the last quarter of 2023 has encouraged optimism for the year ahead, supported by expectations that reduced borrowing costs and soft landings in some major economies will bolster dealmaking in the asset class.
Private equity continued its recovery in Q4, with deal value increasing by 58.1% from the previous quarter – and 20% higher compared with the same period in 2022 – to reach a six-quarter high of $147.6bn, according to the Private Equity Q4 2023: Preqin Quarterly Update.
Though full-year deal volume was still lower than previous years in Europe and North America – which experienced 13.6% and 6.4% declines, respectively – the fourth-quarter surge in value hints that any cuts in interest rates from two-decade highs could trigger further activity.
Private equity dealmaking has slowed since hitting record highs in 2021, following a procession of interest rate rises aimed at tackling inflation and a slide in asset valuations that left buyers at odds with sellers.
But a pause in rate hikes, and expectations that cuts could emerge later this year, have prompted some to step up their activity in anticipation that prices could start to rise amid a recovery in M&A. Blackstone President, Jonathan Gray, told the Financial Times last week that the firm was increasing its activity ahead of potential price rebound.
An uncertain outlook for public equity markets and the US economy remain potential challenges to sentiment, said Cameron Joyce, Head of Research Insights at Preqin, while recent geopolitical developments in the Red Sea and associated implications for higher energy prices could help shift the environment.
‘This would change the direction of inflation and interest-rate expectations once more, while potentially triggering a new wave of risk-off sentiment that would disproportionately affect private equity fundraising and deal flow,’ he said. ‘While the risks are there, we remain upbeat on the outlook in 2024, given the ongoing measures to combat inflation.’
While private equity ended the year on a slightly more positive footing, venture capital and real estate suffered from a challenging exit environment, rounding out the year on fresh lows in both deals and aggregate exit value bases.
Global real estate deal value slipped by 19% to $24.5bn in Q4 2023 from $30.1bn in Q3 2023, the lowest quarter since Q4 2010 ($24.3bn). Despite the global decrease, Asia-Pacific deal value rose 7% in the fourth quarter, driven mainly by transaction volumes in Hong Kong and South Korea. Henry Lam, Lead Analyst of the Real Estate Q4 2023: Preqin Quarterly Update, holds a ‘positive long-term view of the real estate market, and envisions aggregate capital raised growing in the run-up to 2025 as investor interest recovers.’
Reflecting on the latest data, Preqin analysis shows that venture capital exits remained muted in Q4 2023. The quarter posted half the number of exits compared with Q4 2022 due to a difficult IPO environment.
‘Weaker fundraising has weighed on dry powder, which is down from a peak in June 2023. We may see dry powder continue to fall as fund managers deploy capital over the coming year,’ Michael Patterson, Senior Associate, Research Insights at Preqin, said.
Though infrastructure fundraising is not ‘out of the woods’, according to Preqin’s Head of Real Assets, Alex Murray, dealmaking kept pace quarter-on-quarter and was consistent throughout 2023, finishing on a yearly high of $92bn. ‘The added benefit of lower inflation in reducing the depth of J-curves for primary investment should further unlock the deal-flow pipeline,’ he said.
The tempering of inflation brings new sources of optimism into the new year, with BlackRock’s $12.5bn acquisition of Global Infrastructure Partners a signal of the potential the world’s largest asset manager sees in the asset class.
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.