Looking to the past, the present, and the future of private equity following a subdued year.
January 6, 2024 (Preqin News) – A lack of fundraising momentum, low asset valuations, and high debt costs were some of the forces that affected private equity in 2024. However, the prospects of more rate cuts, electoral stability, and signs of a recovery in M&A are giving GPs reasons to be more optimistic for the year ahead.
Deal-making has now surpassed the total in 2023 and is up to $1.2tn so far this year, according to Preqin Pro. It is widely expected that the build-up of dry powder and the backlog of exits will begin to clear as M&A picks up in 2025.
However, slower distributions to LPs and a lack of capital recycling have caused fundraising to decline for the fourth year, with $673.7bn raised by private equity funds so far this year, down 28% from the $934.0bn total at the market’s peak in 2021.
After three years of GPs returning capital to investors between 2013 and 2015, capital called has exceeded distributions every year since 2016, to the tune of $859.7bn by the end of 2023. Data collection methodologies mean 2024 numbers are not yet available, but anecdotal evidence points to a continuation of the trend.
Distributions falling short of capital calls
Annual private equity capital called & distributed, 2016–2023
Source: Preqin Pro. Data as of December 2024
Falling interest rates and easing inflation will invigorate managers and should lead to an increase in exit activity and capital recycling. However, secondaries and continuation vehicles, which have risen to prominence in recent years, will remain a crucial part of the exit playbook.
Preqin News spoke with private equity managers and advisers to gather their thoughts, opinions, and predictions for fundraising, deals, and performance in 2025.
Fundraising
While the overall availability of LP capital is likely to improve, we expect fundraises to continue taking longer, given meaningful pent-up demand from GPs who have either delayed fundraises or raised smaller funds, as well as a backlog of GPs currently in the market who are waiting for allocations to re-set in 2025.
Michael Flood, Managing Director & Head of Private Equity, Northleaf Capital Partners (Toronto, Canada)
The last two years were tricky for fundraising for private equity, but nobody told us they didn't want to re-up because they don't like the asset class. LPs said they wanted to put more money to work, but they couldn’t because GPs weren’t distributing. The questions in 2025 won’t be about allocations or the denominator effect, they’ll be about which strategies LPs want to put money in. Will they just press repeat? Or will they look at new managers?
William Barrett, Managing Partner, Reach Capital (Paris, France)
While overall liquidity remains constrained, sentiment has improved, and investors are eager to back their favorite managers, often at the expense of long-standing relationships. This has created a two-speed market, with drastically different outcomes depending on where you stand. For some, we’ve seen the return of sub-six-month fundraising periods and quick ‘one and done’ closes, while other established firms struggle or even fail. The era of a liquidity-driven ‘rising tide’ that lifts all boats is over, and the battle for capital is now more intense than ever.
Gabrielle Joseph, Managing Director, Rede Partners (London, UK)
We were oversubscribed with six GPs. We got to some amazing outcomes, but it was not easy. It came down to track record, as highlighted by DPI, the ability to return capital, and the support of existing investors. If existing investors showed up in the first close, they had phenomenal outcomes. If they did not, it was much more difficult.
Sunaina Sinha Haldea, Global Head of Private Capital Advisory, Raymond James (London, UK)
The private equity and credit industries are entering a consolidation wave driven by several factors: rising regulatory costs; talent retention challenges for smaller firms; generational transitions; and LPs consolidating commitments to fewer, established firms, leaving little room for new entrants. This trend will take time to play out due to the long cycles of private market funds, but sub-scale firms will face pressure to grow, merge, or exit the market. The status quo is not an option.
Jeffrey Stevenson, Managing Partner, VSS Capital Partners (New York, US)
At the same time as we will see continued expansion of the multi-product mega-firms, we expect to see continued growth in first-time funds. For example, first-time fund launches in 2023 were up more than 20% YoY. We are seeing strong demand for new managers with a clear ‘right to exist’, a differentiated value proposition, and a cohesive team with an attributable track record. This can become even more compelling with potentially meaningful co-investment offerings.
Michael Flood, Northleaf
It’s always been hard for new managers to raise money – that’s still the case. But for a good team with a good story, and a good track record between them, potentially willing to consider a discount or sharing some economics through arrangements like GP stakes or seeding to secure a key cornerstone investor, there is a route to fundraising. It may be more complex and protracted, but you can get there.
Peter Boulle, Partner, Private Funds Group, Weil (London, UK)
Deals
I’m cautiously optimistic about 2025. There are a lot of reasons for deal flow to pick up, including a large number of businesses sitting in the portfolios of private equity firms that need to sell. We have found very interesting opportunities even in quieter markets, with seven of the nine deals we’ve done this year as the first private equity investor, and I am optimistic that will continue.
Flor Kassai, Managing Partner and Head of Buyout, Inflexion Private Equity Partners (London, UK)
The mega deal market has already picked up in Europe, and big deal M&A activity is ongoing, which will trace to distributions during Q1 and beyond. Europe is much more open than the global market for big-ticket M&A, and that will filter down to the mid-market.
Jean-Philippe Boige, Managing Partner, Reach Capital (Paris, France)
The public markets will continue to provide good opportunities for private equity. Public markets are not adequately supporting mid-market companies in Europe, so we are finding management teams are frustrated and open to take-private or carve-outs of divisions.
Flor Kassai, Inflexion
Structured equity will continue to grow in importance. While interest rates have come down modestly, the ongoing high-interest environment continues to strain the cash flows of private equity-owned companies. This has led to reduced availability of capital to support growth and expansion, prompting a shift towards more flexible, non-dilutive capital solutions like preferred or structured equity.
Michael Flood, Northleaf
Continuation vehicles have become an accepted portfolio liquidity tool. The industry has gone from concerns about rewarding failure or salvaging zombie funds to single-asset continuation vehicles for premier assets. There’s an acceptance amongst most LPs that, if properly managed, these transactions can provide very good routes to liquidity and optionality for investors who want to roll over into the asset. The conversations with the LPAC are now very constructive.
James Bromley, Partner, Private Funds Group, Weil (London, UK)
LPs and GPs now understand the use case for continuation vehicles. It's now established deal technology, and you don’t need to explain what you mean. It's no longer about education, it's now about execution.
Sunaina Sinha Haldea, Raymond James
I think GP-led transactions will continue to grow. There were more exits from GP-leds in 2024 than there have ever been from IPOs. At the peak, the proportion of exits via IPOs was around 12%, but more recently, we’ve seen around 13% of exits by value from continuation vehicles.
Ed Gay, Partner & COO, Hollyport Capital (London, UK)
The GP-led market remains very active and is generating clear distributions to investors, but people are conscious that you cannot live off GP-leds and NAV financing to generate DPI. If M&A processes that have started now complete in March 2025, that then gets distributed to LP accounts and they would be happy to commit to new projects by the summer. That’s the optimistic timeline.
William Barrett, Reach Capital
Performance
When we look at 2024 in review, we see that investors and private equity managers alike appear more optimistic as we head into 2025. However, fund managers are wary of regulatory and geopolitical risks, remaining concerned about asset valuations. The long-term demand for higher and uncorrelated returns compared to public markets should give the industry a head start.
Victoria Chernykh, AVP, Research Insights, Preqin (London, UK)
The beauty of being in the mid-market is that you tend to be quite insulated from the big-picture trends. European GDP grows at 0.6%, but the verticals we invest in, such as governance, risk and compliance, business information, insurance broking, or vet practices, are largely decoupled from the macro and growing at 8–10% per annum. We pick the leaders in those niches and support them to grow at 15–20%.
Flor Kassai, Inflexion
LPs are increasingly scrutinizing a manager’s ability to deliver DPI across cycles. The focus on DPI is also shaping investment preferences. For many years, LPs saw little trade-off between ever-growing fund sizes and returns. Today, we see that exit activity has slowed the most at the mega-cap level, prompting some investors to shift their focus to middle-market funds, which they believe have broader exit potential.
Gabrielle Joseph, Rede Partners
The dirty secret about private equity is that very few funds wrap up within a 10-year life – the average age at liquidation today is around 15 years. Of the $3tn invested in underlying companies, around a third of that has extended beyond its original term. And, with the lack of distributions, that bubble just gets bigger and bigger. The secondary market is inevitably playing catch up and that’s what makes me excited about it. The secondary market is very, very much here to stay, and there's a huge amount to go after.
Ed Gay, Hollyport Capital
We think some of the best opportunities are in small, focused managers. But even if you are convinced as a Head of Private Equity, is the risk department going to allow me to do it? Am I going to be able to convince my investment committee? That’s what we're facing. People have the intention and are great professionals, but at the end of the day, they must also be champions and convince the IC.
William Barrett, Reach Capital
Looking to 2025, we expect co-investment to continue to increase as it has become necessary to attract new investors and keep existing investors happy. We are also seeing GPs who traditionally had offered limited co-investment institutionalize this process as they recognize the benefits of a partnership mindset and the resulting positive dynamics on the LP-GP relationship.
Michael Flood, Northleaf
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.