1. Inflation slows, room for lower interest rates
In 2024, the IMF expects a gradual decline in global inflation, albeit with regional differences in the extent of the decline. Importantly for investors, central banks are expected to cut policy rates in 2024, which will make financing private equity transactions easier.
2. Exit climate recovers slightly
According to Pitchbook, just over 1,000 exits took place in the European private equity landscape in 2023 up until November, more than 30% less than in the same period the previous year. Investment companies that previously had a wait-and-see approach, will step up their efforts to achieve exits in 2024, as the end of term for some of these funds is fast approaching.
3. Continued growth of continuation vehicles
Continuation vehicles remain popular with investment companies to secure exits, but due to increased supply, there will be a continued flight to quality, with only the most attractive vehicles closing at the desired size.
4. Private equity acquisitions will increase, driven in part by still relatively abundant available capital, keeping company valuations up to standard
Investment companies that raised funds before the Covid pandemic remain under pressure to invest capital towards the end of their investment period. This creates a relatively large amount of available capital to be allocated in 2024-2025.
5. Creativity remains crucial for successful dealmaking
Despite the expected increased stability in the markets compared to 2023, a creative approach remains key when closing deals. This may manifest itself, among other things, in a higher number of carve-out deals, where investment companies can often add significant value.
6. Slight recovery of fundraising market, especially for established names
With slightly improving macroeconomic prospects and greater stability in public markets, there will be opportunities for established investment companies in particular to raise capital for their new funds.
New and relatively young investment companies will also be able to benefit, although investors will continue to look critically at the quality and experience of the team and the professionalism of their operations and investment functions.
7. Further 'democratisation' of private markets asset class
The growing demand from entrepreneurs and private investors for investments in private markets will continue in 2024, spurred by the desire for greater diversification and higher returns. According to Goldman Sachs, family offices in Europe allocated an average of 30% of their assets to private markets in 2023, and this percentage is expected to rise further in 2024.
8. Increased supply of co-investments
Despite a slight improvement in conditions for raising new capital, it remains necessary for investment companies to offer attractive co-investments to convince investors to participate. Co-investments also allow investment companies to achieve sufficient diversification with less capital in the fund.
9. Further growth of the secondaries market
The average discount when buying fund positions in the secondaries market is gradually increasing. This is due to investors' continued desire to sell fund positions, partly because of the increasing investment pace of investment companies and the resulting capital calls. As a result, the secondaries market as a whole will grow, and 2024 could possibly be a record year in terms of transaction volumes.
10. Expansion of NAV loans
Despite concerns among investors, the NAV loan market will continue to expand from current levels, driven by continued demand for liquidity.
