Market Overview and Key Trends in 2024

Global private markets experienced mixed conditions in 2024. Dealmaking, after two years of decline, showed signs of recovery, with investments and exits reversing their downward trends. This rebound was partly driven by a more benign financing environment, including easing interest rates and increased syndicated loan issuance. For the first time since 2015, distributions to LPs exceeded capital contributions, a significant development that provided much-needed liquidity.

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However, fundraising remained a significant challenge. Traditional commingled vehicles saw a 24% year-over-year decline in capital raised, marking the third consecutive year of decrease. This lag is attributed to LPs' increased focus on Distributions to Paid-in Capital (DPI) and a general caution stemming from extended holding periods and the need for higher earnings growth to achieve target Internal Rates of Return (IRRs) in a high-interest-rate environment.

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Key trends observed in 2024 that are expected to continue influencing 2025 include:​​

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Resilience and Innovation:

Private market stakeholders are demonstrating adaptability, with fundraisers exploring new vehicles like evergreen funds and dealmakers shifting focus from financial engineering to sustained operational transformation.

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Operational Value Creation:

With higher interest rates and longer holding periods, achieving attractive returns increasingly depends on delivering strong operational performance and strategic transformation within portfolio companies. This includes optimizing pricing, enhancing sales effectiveness, and leveraging AI for productivity gains.

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AI Integration:

The rapid advancement of generative AI (gen AI) is compelling private market leaders to integrate AI into their operations, streamlining processes, improving analytics, and building competitive advantages.

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Longer Hold Periods and Liquidity Solutions:

The challenge of exits has led to increased holding periods for portfolio companies. In response, GPs are exploring and utilizing various liquidity solutions, including continuation funds, secondaries, and Net Asset Value (NAV) loans, to return capital to LPs.

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Sector Selectivity:

Dealmaking is becoming more concentrated in sectors that offer scalable growth with limited capital intensity, such as enterprise software, healthcare platforms, and tech-enabled services.

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Consolidation and Scale:

The trend of consolidation among GPs continues, with larger firms acquiring smaller ones. While scale can offer flexibility and diversified income streams, its direct correlation with performance or fundraising success remains to be fully established.

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Increased Use of Public-to-Private (P2P) Transactions and Carve-outs:

These deal structures are gaining traction as a means to accelerate deployment, particularly in regions like Europe where P2P activity saw a significant increase in 2024.

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Challenges and Considerations

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Despite the positive indicators, the private equity market in 2025 will still face notable challenges:​

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Fundraising Competition:

The fundraising environment will remain competitive, with capital increasingly consolidating in the hands of top-performing and large-scale funds. Smaller or less differentiated funds may find it harder to raise capital.

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Tightening Exit Options:

While an improvement is expected, traditional exit routes like IPOs and strategic sales may still be narrow, necessitating continued reliance on alternative liquidity solutions.

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Valuation Discrepancies:

Determining the true earnings of target companies, especially those acquired at high valuations in previous years, will continue to be a challenge.

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Regional Disparities:

Certain regions, such as Asia (particularly China), may continue to lag behind North America and Europe in fundraising, performance, and deal activity.

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Increased Scrutiny on Governance and Transparency:

As alternative liquidity solutions like continuation vehicles become more prevalent, questions around pricing, governance, and LP appetite will come under greater scrutiny.

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Outcome

The private equity market in 2025 is poised for a gradual recovery, building on the momentum of late 2024. The industry is adapting to a new normal characterized by higher interest rates and a greater imperative for operational value creation. Success will hinge on the ability of GPs to innovate in fund structures, demonstrate strong operational capabilities, and strategically select sectors with resilient growth potential. While uncertainties persist, the long-term appeal of private equity as an asset class remains robust, with investors continuing to seek its diversification benefits and attractive return potential.