Firms are also turning their attention to new industries and investment themes. Sports, for example, has been an increasingly powerful trend in recent quarters. As commercial opportunities crystallize and investment theses harden, the industry has seen a surge of capital deployed into the space; globally, PE firms have deployed nearly US$50b across nearly 500 deals since 2019.Substantial barriers to entry, low correlations with other asset classes, loyal customer bases that dwarf those of companies in non-sports verticals, and the diverse revenue streams that flow to sports teams and sport-adjacent markets provides a substantial roadmap for value creation for sponsors to pursue.
AI continues to be not just an active lever for value creation within the portfolio, but an active investment thesis. So far this year, PE firms have committed US$17b to AI and other machine learning (ML)-oriented investments, triple what they committed last year. The majority - 77% - was allocated to companies specializing in AI software, consulting, outsourcing and network management. Consumer businesses with AI/ML deeply embedded into their operations, such as online retailers, received 13% of the funding. Health care entities utilizing AI/ML for drug discovery, outpatient services, and health-tech innovation also garnered substantial PE interest.
Further, significant investments have been made in IT infrastructure providers that support the AI/ML industry. GPs are strategically investing in the energy and real estate assets that are essential to the infrastructure upon which AI/ML platforms depend. Notably, PE firms have announced approximately 30 large-scale deals (each exceeding US$1b) in data center services over the past five years.
Exits and the impact on fundraising
Exit activity ticked higher in Q2 as well, although it remains well below the levels of 2021-2022. Firms announced 90 exits in the second quarter of the year valued at US$113b, up marginally from the US$79b announced in the first quarter.
While there are several reasons for the bottleneck in exits, a dearth of buyers isn’t among them. In our survey of GPs, only 30% cited a lack of interested buyers as a fundamental impediment for exits. Instead, GPs are focused on ensuring that their portfolio companies are performing optimally and present a compelling equity story; waiting for valuations to improve to maximize value; and to a lesser degree, waiting for the IPO window to crack wider and pursuing alternative liquidity routes such as continuation vehicles.
