Despite the fluctuating financial landscape of 2023, the private equity industry demonstrated remarkable resilience. While fundraising activities declined by 15% to $649B, the sector displayed strategic finesse, with buyout funds reaching a record-breaking $400B. Notably, the European market saw a 50% surge in fundraising, showcasing the region's market potential and robust investor confidence. Underscoring the industry's strength, private equity assets under management expanded by 8% to a notable $8.2 trillion, affirming its ability to steadily accumulate assets even in turbulent times. Though the fundraising journey lengthened to an average of 20.1 months, this measured pace indicates a deliberate and thoughtful investment approach. Dealmaking reflected a cautious yet optimistic sentiment, with a significant uptick in add-on transactions comprising nearly half of the buyout deal volume. In a year marked by higher interest rates and compressed multiples, private equity's tempered yet steadfast performance and strategic maneuvering signified its enduring appeal to investors.

"Sponsors largely opted to hold assets longer rather than lock in underwhelming returns. While higher financing costs and valuation mismatches weighed on overall deal activity, certain types of M&A gained share. Add-on deals, for example, accounted for a record 46 percent of total buyout deal volume last year."

McKinsey & Company

The private debt market is undergoing a period of robust growth, driven by structural shifts in public financing that are fueling strong investor demand for this asset class. Forecasts suggest assets under management could more than double from $1.7 trillion in 2023 to an impressive $3.5 trillion by the end of 2024. Investors are drawn to private debt's potential for better yields relative to risk, as well as the asset class's ability to provide some insulation from interest rate and inflation fluctuations. Additionally, the stability that private debt can offer in turbulent markets is a key factor driving increased allocations. However, this rapid growth is not without its challenges. Policymakers have warned of the risks of sharp revaluations if the macroeconomic outlook were to deteriorate. To succeed in this increasingly competitive environment, private debt managers will need to differentiate themselves by offering more tailored solutions, focusing on specific sectors and strategies, and applying robust origination and portfolio management capabilities. As the private debt market continues to evolve, new opportunities are expected to emerge in areas such as emerging markets, niche sectors, and innovative structures. Managers who can adapt and capitalize on these evolving trends will be well-positioned to thrive in the years ahead.

Investor demand for alternative investment strategies is evolving, with 'long/short equity' remaining the most popular strategy at 65% interest in 2024. Allocations into 'equity market neutral', 'fixed income/long short credit', and other diversifying strategies saw the largest increases in demand as investors seek to hedge against market volatility and higher interest rates. Conversely, interest in clean-tech/ESG/impact investing and cryptocurrencies declined sharply, though the latter is expected to gain more institutional recognition over time. As for pension funds, demand increased for strategies such as CTAs and reinsurance. Investors have become more comfortable with smaller and emerging managers, with over 50% open to funds under $100M, a trend that, combined with the industry's increased adaptation to virtual due diligence, is expected to shape asset flows in the coming year.

Family Offices Emerge as Dominant Investors in Australian Private Markets

https://www.asianinvestor.net/article/family-offices-make-up-over-one-third-of-australian-private-market-investors/495382

Written by:

Andrew Popp | Sr. Research Associate