Introduction
We compiled and reviewed 8+ of the most recent State of the Private Markets reports from industry leaders so you don't have to!
Here are the common themes (with the help of (Notebook LM) across reports from : PwC, Private Equity International, S&P Global, Affinity, and our 2024 Investor Experience Survey Report. Full Report links at the bottom of the page. Several data points are shared across the different sources, providing a consistent view of key trends in the Private Capital Markets across Venture Capital, Private Equity, Private Credit and Real Estate.
Key Data Points:
Growth in Private Markets AUM: Both the S&P Global and Verivend reports note the significant growth in private markets assets under management (AUM).
S&P Global reports that private markets AUM totaled more than $12.4 trillion globally as of 2023, up from $10.7 trillion at the end of 2022. They also project that private markets will reach more than $15 trillion by 2025 and more than $18 trillion by 2027.
Verivend cites the World Economic Forum, noting that retail investors accounted for 52% of global AUM in 2021, and that this is expected to grow to over 61% by 2030. This demonstrates the significant role retail investors play in the growth of private market AUM.
Private Credit Growth: Both the PwC and S&P Global reports highlight the substantial growth of private credit.
PwC states that total private credit assets under management now total almost $1.7 trillion globally, more than three times the 2015 total.
S&P Global notes that the global private credit market is $1.5 trillion. It also mentions that some estimates suggest total assets under management will more than double by 2028.
Continuation Fund Growth: Both the PwC and Private Equity International (PEI) reports discuss the rise of continuation funds.
PwC indicates that by mid-2024, continuation funds held more than $50 billion in assets under management.
PEI notes that a significant proportion of LPs have seen an increase in continuation funds, with more than a third seeing "substantially more" of these vehicles.
Dry Powder Levels: Both the PwC and S&P Global reports discuss the amount of dry powder available to private equity firms.
PwC notes the substantial backlog of portfolio companies seeking an exit, and the availability of funds that private capital is looking to deploy.
S&P Global notes there was an additional $3 trillion in dry powder as of 2023, which is cash committed by investors but has yet to be allocated to specific investments.
The Affinity report mentions a record level of dry powder from growth equity and private equity investors.
M&A Activity: Both PwC and Affinity touch on M&A activity and expected increase.
PwC states that they are expecting the pickup in global M&A activity for private capital to continue and accelerate. They also note that the value of private equity deals in Japan rose sharply in 2023.
Affinity notes that while deal activity was subdued in Q3 2024 onwards, there are positive signs that deal activity will be higher in 2025.
Despite a slow start, the private equity M&A market saw a resurgence in deal value during 2024, with a notable 23% increase to $1.7 trillion. This momentum is expected to continue and accelerate into 2025.
Use of AI: Both PEI and Affinity highlight the growing interest and adoption of AI by GPs.
PEI notes that a majority of LPs expect managers to incorporate some degree of AI in their operations.
Affinity observes a notable shift towards productivity-related tasks in the use of AI.
Secondaries Market: PEI's analysis indicates a growing secondary market, where LPs seek to unlock liquidity. The survey data also shows that 45% of global LPs plan to increase their private equity deployment in the next year. This suggests that there is growing opportunity in the secondary market as both LPs and GPs look to manage their portfolios and generate liquidity.
These converging data points reinforce the major shifts occurring within the private capital landscape especially the substantial growth in AUM, the increasing significance of private credit, the rise of continuation funds, large amount of dry powder, ongoing M&A activity, and the growing adoption of AI.
Key Trends of 2024
Resilience Amidst Headwinds: Private capital firms navigated a challenging economic environment in 2024, marked by rising interest rates and decreased liquidity. Many firms adopted a cautious approach, prioritizing high-quality deals and reinvesting in existing portfolio companies.
Sector Convergence: A prominent trend in M&A is the convergence of industries, particularly in technology, energy, and infrastructure, driven by the AI boom. Examples include technology companies seeking new energy sources for data centers, and tie-ups between consumer health and fintech firms.
Retail Investor Influx: Retail investors are increasingly entering the private markets, transforming how capital is raised and deployed. This shift demands more time, resources, and operational efficiency from investment sponsors and GPs.
Secondary Market Activity: There has been increased activity in the secondary market as both LPs and GPs seek liquidity. Continuation funds, in particular, have grown substantially, reaching over $50 billion in assets under management.
Predictions and Trends for 2025
Continued M&A Growth: The pickup in global M&A activity for private capital is expected to continue and accelerate in 2025, fueled by declines in the cost of capital and a backlog of portfolio companies seeking an exit.
Distressed Fund Dynamics: There is an expectation that distressed funds will see more activity in 2025, as lenders can only "extend and pretend" for so long before they are pressured by auditors.
Private Credit Pause: The private credit market, while still growing, is set for a pause after its recent explosive growth. The market is being squeezed by narrowing credit spreads and competition from banks.
Increased Transparency and Regulation: As the private credit market grows, there are increasing calls for more transparency and regulation.
AI Adoption: There is growing adoption of AI by GPs, including for due diligence, gaining insights into portfolio companies, and streamlining back-office functions. 77% of LPs want their funds to use AI for investment analysis and decision-making.
Optimism in the market: 72% of investors expect to do more deals in 2025. LPs are also expressing more optimism, with 38% expecting to exceed benchmarks in 2025, up from 23% last year (Private Equity International).
LP Behavior
Increased Optimism: LPs are generally more optimistic about the private equity market, with a majority believing it will meet or exceed benchmarks.
Higher Allocations: 45% of LPs plan to increase their private equity deployments.
Focus on Fund Operations: LPs are increasing scrutiny of fund operations and demanding more reporting, compliance and technology. They also seek more digital and data driven interactions with their GPs.
Seeking Transparency: LPs are demanding more transparency from their GPs and are concerned about a lack of clarity about their investments.
ESG and Climate Risk: LPs are incorporating ESG and climate risk into their decision-making, but are unwilling to sacrifice financial returns for higher ESG scores.
Wider GP Networks: LPs are looking to expand their GP relationships and consider backing emerging managers.
GP Behavior
Lowering Fees: GPs are being forced to lower their management fees to attract and retain LPs.
Emphasis on Value Creation: With high valuations, there will be a renewed focus on value creation and operational transformations. Funds are becoming more disciplined in looking at operational transformations with enough upside to justify hefty valuations.
Focus on Technology: GPs are adopting digital solutions and AI to improve their operations, including automating fund accounting tasks and using AI to enhance deal origination and execution.
Deal Sourcing Efficiency: Firms will focus on deal sourcing efficiency, leveraging data and technology to streamline the process. 50% of investors plan to focus on new deal sourcing in 2025, up from 30% the previous year (Affinity).
Conservative Deal Structuring: GPs are urged to have significant "skin in the game" and reasonable fees to attract investors.
Transparency with LPs: There is a prediction for increased communication and transparency between GPs and LPs in 2025.
Conclusion
The private capital markets are undergoing a dynamic transformation marked by increased deal activity, technological advancements, and a growing interest from retail investors. Both LPs and GPs are adapting their strategies to navigate these shifts. While the industry faces challenges, including heightened competition, regulatory uncertainty, and liquidity constraints, there is also significant optimism about the opportunities that lie ahead.
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