The private equity market in 2024 is facing challenges related to liquidity, with investors pressing for capital returns due to extended holding periods. The market has seen a significant increase in unrealized values, reaching USD 3.2 trillion, leading to a search for innovative liquidity solutions.
While there are signs of recovery in deal activity, exit volumes in private equity have yet to rebound. Private equity sponsors are cautiously optimistic, with a survey indicating that 73% expect an increase in activity. However, there is a mismatch in valuation expectations between sellers and buyers, particularly for median companies. GPs are exploring secondary markets and continuation funds to enhance distributions to LPs. Transactions in these areas have surged in the past year, setting the stage for a record-breaking 2024.
The current operating environment has generally supported strong performance among privately-held companies, with positive top- and bottom-line results. Valuations are approached cautiously due to losses experienced during the 2022 market pullback. GPs are focusing on mid-market companies and employing buy-and-build strategies to enhance value creation. Integrating smaller add-on acquisitions helps lower entry multiples and make platform investments more attractive. Corporate carve-outs are also gaining traction as a strategic avenue for growth.
In the venture capital landscape, the end of low interest rates has led to a challenging fundraising environment. Established, well-known firms are preferred by LPs, with funds exceeding USD 1 billion accounting for a significant share of all venture funds raised. While venture capital investment has declined, there is still a substantial flow of capital to founders. Mega-deals have slowed, but sectors like artificial intelligence continue to attract attention.
Fundraising in private equity has become concentrated among larger funds, with over USD 5 billion funds accounting for more than 50% of total capital raised. European mega funds have seen an increase in their share of global capital raised. Smaller and first-time funds face challenges in securing capital. The IPO market in 2025 is expected to be more active, potentially revitalizing capital flows back to LPs and smaller funds and companies.
The evolving landscape of private equity and venture capital requires adaptability and strategic foresight from GPs. The interplay between liquidity, valuation, and investor sentiment will continue to shape the future of private markets.