The global private equity (PE) landscape is exhibiting cautious optimism as recent data indicates a rebound in dealmaking activities. According to Bain & Company’s 16th annual Global PE Report, private equity investments and exits increased last year, showing signs of recovery.
This reversed the steep declines of the previous two years, which had been among the industry’s toughest times since the global financial crisis. However, fundraising hurdles and liquidity constraints continue to pose significant challenges for the industry.
After a period of subdued activity, the PE sector witnessed a notable resurgence in 2024. Global buyout investment value escalated by 37%, reaching $602 billion. This uptick is largely attributed to declining interest rates, renewed investor confidence, and the imperative to deploy accumulated capital.
Public-to-private transactions have been at the forefront of this revival, accounting for $250 billion in 2024. Notably, nearly half of the transactions exceeding $5 billion in North America fell into this category, underscoring a strategic shift within the industry.
Despite the positive momentum in dealmaking, fundraising has encountered significant headwinds. Global buyout funds experienced a 23% decline in capital raised compared to 2023, with over a third of these funds taking two or more years to close.
This downturn is exacerbated by a liquidity crunch among limited partners (LPs). Although exit activities increased by 34% to $468 billion, distributions as a portion of net asset value plummeted to the lowest rate in over a decade, limiting the capital available for reinvestment.
The current fundraising climate has led to a pronounced bifurcation in the market. Capital is increasingly gravitating towards large, established firms with robust track records, making it challenging for emerging managers to secure commitments.
To remain competitive, many firms are offering co-investment opportunities to attract LPs seeking better economics and deeper involvement in portfolio management. This strategy also benefits general partners (GPs) by supplementing larger equity checks amid rising debt costs.
The sources of capital in private equity are evolving. Bain & Company projects that private wealth and sovereign wealth funds (SWFs) will drive approximately 60% growth in alternative assets under management over the next decade.
Individual investors currently hold about 50% of global capital but represent just 16% of assets under management in alternative investment funds. This disparity presents a significant opportunity for PE firms to tap into private wealth by offering retail-oriented products with lower minimums and enhanced liquidity.
Simultaneously, SWFs, which collectively control investment capital worth $6 trillion, are expected to grow by 11% annually over the next decade, reaching $17 trillion. These funds are increasingly sophisticated, seeking active roles in partnerships and co-investments, thereby reshaping capital flows within the industry.
Private equity firms are progressively integrating generative artificial intelligence (AI) into their operations to enhance efficiency and value creation. Applications range from automating routine tasks to uncovering new investment opportunities, signaling a transformative shift in how firms operate.
Looking ahead, the private equity industry is poised for a measured recovery. While dealmaking shows signs of revitalization, challenges in fundraising and liquidity persist. The ability of firms to adapt to these evolving dynamics, embrace technological advancements, and diversify capital sources will be pivotal in navigating the complexities of the current landscape.
The private equity sector stands at a crossroads, balancing between emerging opportunities and enduring challenges. The industry’s trajectory in 2025 will hinge on its capacity to innovate, adapt, and strategically position itself in a rapidly changing financial ecosystem.
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