Private equity review 2023 (2024)

FAQs

What is the outlook for private equity in 2023? ›

Private equity continued to reel in 2023 as rapidly rising interest rates led to sharp declines in dealmaking, exits, and fund-raising. The exit conundrum has emerged as the most pressing problem, as LPs starved for distributions pull back new allocations from all but the largest, most reliable funds.

Throughout 2023, private equity faced a litany of challenges as it navigated a mini banking crisis, increasing capital costs, and an intractable valuation gap between buyers and sellers, all while facing enhanced regulatory scrutiny. The cumulative impact resulted in a steep decline in overall deal activity.

Higher financing costs, lower multiples, and an uncertain macroeconomic environment created a challenging backdrop for private equity managers in 2023. Fundraising declined for the second year in a row, falling 15 percent to $649 billion, as LPs grappled with the denominator effect and a slowdown in distributions.

In 2024, PE firms are increasingly targeting retail investors who are drawn to the resilience of the asset class, the diversification it offers, and its performance compared to public markets. It's particularly attractive to high-net-worth individuals and quasi-retail investors.

Private equity funds have produced an annualised return of around 17% over the past decade, making the asset class one of the best-performing in the world, according to the Cambridge Associates Private Equity Index.

Summary. Private equity firms will focus on five key trends in 2024. Deploying artificial intelligence will lead the way, followed by investment in infrastructure particularly related to energy projects. Value creation will also be a priority as firms seek to improve strategic and operational efficiency.

Persistent macroeconomic uncertainty remains a key factor in muted private equity exit activity, making it difficult for buyers and sellers to agree on a fair valuation for a business, said Paul Aversano, a managing director at M&A advisory Alvarez & Marsal.

PE sees its strongest quarter in two years.

Private equity (PE) activity saw its strongest quarter in two years in Q2 2024. Firms announced 122 deals valued at US$196b, nearly double the US$100b announced in Q1, making it the strongest period for capital deployment since the downturn began in the third quarter of 2022.

How big is the private equity industry? The global private equity market size is expected to increase USD 1,246.08 billion by 2033 from USD 492.82 billion in 2023.

Private equity can be a very well-performing asset class during a recession.

What is the biggest challenge in private equity? ›

Slow economic growth, labor issues, high interest rates, inflation, geopolitical tensions, potential recessionary pressures, and instability could all dampen fundraising and exit opportunities. Despite the slowdown in 2023, private equity firms remain optimistic.

Private equity owners make money by buying companies they think have value and can be improved. They improve the company or break it up and sell its parts, which can generate even more profits.

Private equity deal values seem to be rebounding in the past few months, fundraising remains robust and secondaries have entered what could be a golden age.

A role in private equity is a very competitive yet rewarding career path. Getting started in a profession in private equity (PE) requires strong analytical and networking skills to jumpstart a career at a PE firm.

The private equity market has grown substantially, and as of 2021, private equity firms manage roughly 20% of U.S. businesses. Private equity firms can access large amounts of capital, which is attractive to business owners, especially as bank loans are becoming harder to access.

In 2023, North America maintained the lion's share of dry powder, at 63%, providing these firms with opportunities to acquire highly leveraged companies in Europe, Asia, and other markets that are facing floating interest rate pressures.

This year's 3.2% COLA is a much smaller percentage compared to the 2023 COLA of 8.7% but is in line with the 3.5% COLA average over the past few decades. Historically, adjustments to the minimum wage were enacted to help lower-paid workers when the cost of living increases.

Data as of March 31, 2023. Coming out of this next downturn, we think the overall health of U.S. consumers could be a bullish backdrop for equities as consumers gradually increase their financial leverage, in turn driving the demand for goods and services—and thereby corporate earnings—above the historical trendline.