Insights on Private Equity Trends

The Family Office investment landscape in 2024 is marked by a decisive shift toward private markets. According to Goldman Sachs, private equity claimed a significant portion of Family Office portfolios in 2023 – representing 26% of their assets. This keen interest in private equity is further substantiated by the UBS Global Family Office Report, which reveals that a remarkable 86% of Family Offices are planning tactical overallocations within this asset class over the next 12 months. In 2023, Family Offices have shown a growing appetite for private debt as a component of their investment portfolios. The BlackRock Global Family Office Survey highlighted that despite a challenging economic outlook, less than a quarter of these offices intend to make material changes to their asset allocation. However, there has been a noted shift in investor sentiment towards private debt. Historically, allocations to private debt have been low, with 87% of Family Offices allocating less than 10%, but two-thirds now indicate their intent to increase their exposure, drawn by the potential returns from dislocated markets. This strategic shift underscores Family Offices' belief in the potential of private equity markets to deliver superior returns, both via investing in private equity firms, but also the direct investment in companies in the mid-market segment. Indeed, Family Offices have been increasingly investing directly in companies – over the past decade, there's been a noted rise in such direct investments due to factors like asset accumulation, talent acquisition, robust networks, and the desire for greater control and decision-making ability. Campden Wealth and FINTRX reports highlight that 76% of Family Offices invest directly in companies, with 83% of Family Offices worldwide considering direct investments. The willingness to take on more risk reflects their confidence in identifying pockets of value within the private equity landscape. As Family Offices pivot toward private equity, they are positioning themselves for long-term growth and the preservation of generational wealth. While private equity takes center stage, Family Offices are also recognizing the value of secondaries investments. The UBS Report highlights a notable trend: nearly half of surveyed Family Offices (45%) plan to over-allocate their portfolios to secondaries. This surge in interest can be attributed to the narrowing valuation gap between public and private markets. As public markets rebounded, secondary markets became increasingly attractive. The ability to transact LP interests in this environment has encouraged higher deal volumes. Secondaries funds raised a staggering $34.66 billion in 2023, surpassing the previous year's total and on track to exceed 2021's record. Some alternatives fund managers, such as Morgan Stanley Alternative Investment Partners and Blackstone, have raised capital for secondaries strategies in 2023. #familyoffice #tiger21 #privateequity

I spent the last two days in meetings with various private equity firms. A few observations from those discussions: 1) M&A volumes have ticked up, but there is concern about the quality of the assets that are in market as well as the bid / ask spread between buyers and sellers. The sense is that an outsized portion of the deals in market will not close because buyers and sellers won't be able to come to terms. 2) Add-on opportunities are very attractive. We spent a lot of time strategizing around capital structures to support incremental add-ons, how to deal with MFN provisions, lenders who are tapped out, committed DDTL testing, etc. 3) Interest in dividend recap and continuation vehicles may be at an all-time high. We're evaluating a number of potential transactions that would return capital to LPs. 4) For new acquisitions, the debt capital markets have eased, but finding "optimal terms" is more difficult now than it was 18-24 months ago. 5) Some commercial banks are starting to edge back into the market, but very selectively and not the commercial banks that one would expect.

As private equity investors increasingly delay the return of capital to Limited Partners (LPs), a new cycle is taking shape. This trend is causing LPs to allocate less capital to fresh private equity ventures. This shift particularly impacts fundraising efforts for both established and emerging managers. Emerging managers feel this more acutely, as their allocations from LPs are often seen as less critical. This evolving landscape may prompt a reevaluation of the industry's standard investment and harvesting timelines. The conventional private equity model of a five-year investment followed by a five-year harvesting period is being challenged. Now, we might see a new norm: five years of investing coupled with a ten-year harvesting phase. This adjustment could have significant repercussions for the fundraising market and investment strategies. Instead of the usual rapid turnover of assets, we might witness asset exchanges occurring perhaps only once every decade. Such an extended holding period for investments implies major shifts in the operational strategies of private equity funds. This includes modifications in value creation approaches, exit planning, and portfolio management. Moreover, it may affect the nature of investments pursued, with a possible inclination towards assets that offer sustainable value over these lengthier timeframes.

US institutional investors are increasingly selling their Private Equity holdings at a discount due to lower-than-expected valuations and rising interest rates. Led by pension funds and endowments, a significant proportion of major investors 99%—sold their PE holdings at or below their net asset value on the secondary market last year, as reported by Jefferies. This is the highest percentage since the investment bank began tracking this data in 2017, with figures standing at 95% in 2022 and 73% in 2021. The surge in the use of the secondary market is a response to the recent slowdown in stock listings and mergers and acquisitions, which are traditional exit strategies for private equity investors. Additionally, many pension plans are obliged to make payouts to their beneficiaries, compelling them to turn to the secondary market to liquidate their assets more swiftly. Amid higher interest rates and consequently lower valuations, PE firms have struggled to achieve satisfactory returns. However, with the situation beginning to stabilise and the mounting pressure on firms to return capital, we are likely to witness a surge in M&A activity. Many advisers are already noting this trend, which is set to continue at pace towards the end of 2024.

Private equity #acquisitions in the U.S. totaled only $425 billion in 2023, less than half the record $916 billion we saw in 2021, and was the lowest since 2013. The weakness in dealmaking was caused by rising rates, restrictive bank lending, the threat of a recession, and a mismatch between buyer and seller #valuation expectations. Instead, PE firms leaned into #valuecreation levers at their portfolio companies, working to generate sustainable earnings improvements. With buyers and sellers creeping toward more alignment on valuations and KPMG US’ economists now predicting four quarter-point rate cuts in 2024, we expect 2024 to see significantly more activity, especially when you consider the amount of dry powder sitting on the sidelines and the need for funds to realize some of their #investments to return money to their LPs. KPMG’s recent M&A survey showed a split between corporate and #privateequity dealmakers, with corporates signaling they would get going in the first half of 2024 and private equity saying they were more inclined to wait until the second half of 2024. This makes sense when you consider that PE buyers reported in the survey that they are more sensitive to rates than corporates, with KPMG’s economists not expecting rates to start falling until May. However, I believe private equity buyers will get going sooner, starting in the second quarter this year, and staying strong into the second half as rates continue to come down. Another interesting finding from our M&A survey was that 50% of PE respondents said they are currently using, and 42% said they plan to use 2024 GenAI in the M&A process, with the top use cases being deal structuring and #dealstrategy. This aligns with what I’ve been hearing from our clients, with 2024 being the year that implementation of #GenAI technologies really starts to get underway. #KPMGPrivateEquity #Mergers #DealMaking #MarketTrends #EconomicOutlook #ValuationExpectations #InvestmentStrategy #DealStructuring #BusinessInsights

As we navigate through the evolving terrain of PE markets, the beginning of 2024 has underscored a critical trend: the return of exits from private equity investments remains pivotal for the market’s recovery. Despite a hopeful uptick at the end of 2023, Q1 has witnessed a 19% drop in total US PE exit value, signaling the continued slowdown. This dip is influenced by factors like high interest rates, scant deal activity, and ongoing discrepancies in pricing expectations between buyers and sellers. The ramifications for the PE industry are huge. Reduced exit activity can stifle the cycle of capital formation, as returns from exits are crucial for fueling new fundraising efforts, maintaining dry powder, and sustaining fund performance. Such downturns began shadowing the industry in 2022 and could potentially curb overall growth if they persist. It’s not all doom and gloom. Innovative liquidity solutions like secondaries funds and continuation vehicles have breathed some life into exit activities. However, traditional routes like sponsor-to-sponsor transactions have plummeted, reaching a 10-year low as investors explore exits to corporates—entities with ready capital for strategic acquisitions. As we look ahead, the shift towards continuation funds and other alternative strategies suggests a strategic adaptation within the industry, aiming to extend exit timelines and enhance liquidity for limited partners (LPs). These adjustments are not just temporary fixes but could lead to a significant transformation in how PE firms manage and exit their investments. Are we witnessing a permanent shift in the PE landscape, or is this just a strategic pivot to navigate current economic headwinds? #PrivateEquity #InvestmentTrends #MarketInsights #FinancialStrategy

The latest JPMorgan Private Bank Global Family Office Report reveals a significant trend: family offices are moving away from the stock market and diversifying into alternative investments. With 46% of their portfolios allocated to alternatives like private equity, real estate, venture capital, hedge funds, and private credit, these offices are aiming for higher returns and reduced volatility. This shift isn’t just a minor adjustment—it’s a strategic move by family offices, especially in the U.S., where the concentration of alternatives is even higher. Large American family offices with over $500 million in assets have more than 49% invested in alternatives. Why the move? Family offices, known for their long-term investment horizons, leverage alternative investments' benefits. These assets offer more stable valuation changes compared to the volatile swings of public stocks. This long-term approach allows family offices to capture the "liquidity premium" and generate higher returns over time. The report also highlights the entrepreneurial spirit driving family offices. Many founders, having sold businesses and amassed substantial wealth, are now seeking ownership stakes in private companies. They’re leveraging their experience to fuel growth in these ventures, making them valuable partners for companies seeking strategic guidance and investment. #FamilyOffice #AlternativeInvestments #InvestmentTrends #WealthManagement

European private equity firms are increasingly extending the duration of asset ownership, signaling challenges in distributing proceeds to investors. Data from Gain.pro reveals that in the previous year, European buyout groups held onto companies for an average span of nearly six years, marking the most extended period since 2010. While the norm for private equity is to maintain asset ownership for three to five years, recent trends show a deviation, with the shortest hold periods recorded in 2012 and 2020, averaging under five years. The research indicates a downward trend in the average revenue growth of companies the longer they remain under private equity control. Specifically, companies held for over seven years exhibited an average growth rate of 6.5% annually, which is significantly lower than the growth rate of those held for under three years. This trend poses a dilemma for private equity firms as they face the challenge of divesting slower-growing companies with slimmer profit margins, a necessary step to redistribute capital to their investors. The conventional buyout approach is experiencing heightened strain, particularly as firms find it difficult to liquidate investments from the era of booming industry and low-interest rates. #privateequity #liquidity #secondary #returnofcapital #privatemarket #institutionalinvestor #privatecredit #privatedebt #growthequity #fiduciary #buyout https://on.ft.com/4bGym3m

📈 Strategic Insights for 2024: Navigating the New Normal in Private Markets and Beyond 📊 As growth leaders, understanding the broader business landscape is crucial, especially considering the evolving challenges and opportunities in private markets. A recent article from McKinsey sheds light on "Ten Considerations for Private Markets in 2024," offering valuable insights not just for private equity markets but for middle-market companies across various ownership structures. Key Considerations for 2024: 1️⃣ Normalizing Dealmaking: Expect a balanced growth in dealmaking, influenced by LP-driven pressures and higher interest rates. 2️⃣ Challenging Fundraising Environment: The 'numerator effect' continues, with fresh LP commitments constrained by valuation growth and slow PE exit velocity. 3️⃣ Concentration Among Larger Names: Larger funds may continue to attract LPs in a tight fundraising environment, limiting new-fund formation. 4️⃣ Emphasis on Value Creation: Transformative change becomes crucial for value boost, with low rates and expanding multiples no longer tailwinds. 5️⃣ Evolving Talent Challenges: The industry faces diversity, equity, and inclusion progress, alongside retention challenges in downturns. 6️⃣ Creative Sourcing: Opportunities may arise from family-owned businesses and corporate carveouts, favoring those with deep networks. 7️⃣ Infrastructure Investing Acceleration: Expanding definitions and uncorrelated returns drive increased LP exposure to infrastructure. 8️⃣ Private Credit Growth: Higher rates enhance the attractiveness of private credit, with banks limiting lending. 9️⃣ Real Estate Deal Volume Recovery: Predictability in living, working, and shopping trends may stabilize rents and encourage deal activity. 🔟 Secondaries Market Expansion: Near-record secondary fundraising could influence private markets, offering liquidity solutions for GPs and LPs. Your (and your customers') CEO, CFO, and Board are discussing these items and making decisions on them. These considerations underscore the importance of adaptability and strategic foresight for sustaining growth and achieving business objectives in the changing landscape of 2024. Remember, balance is a Verb: The concept of balance in business is dynamic, requiring continuous adjustment and alignment with evolving market conditions. This perspective is crucial for effectively managing the multitude of factors influencing company and customer decisions. 👇 For a deeper dive into these insights, see the full article linked in the first comment below. Call to Action: What market and economic trends do you believe companies need to be aware of in 2024 that may be currently under the radar? #BusinessStrategy #MarketTrends #PrivateMarkets #VentureCapital #talentmaximization #executivesearch

𝟮𝟬𝟮𝟰: 𝗔 𝗧𝘂𝗿𝗻𝗶𝗻𝗴 𝗣𝗼𝗶𝗻𝘁 𝗳𝗼𝗿 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗘𝗾𝘂𝗶𝘁𝘆 (𝗣𝗘) 𝗗𝗲𝗮𝗹 𝗠𝗮𝗸𝗶𝗻𝗴? For PE deal makers, 2023 was another challenging year but revealed some notable trends. 📉 Economic Pressures: High inflation, rising interest rates, and elevated valuations caused a significant drop in PE activity, with a 28.9% decrease in transactions and a 45.2% fall in deal value from 2022. 🔍 Sector Spotlight: Technology, media, telecom, and industrial manufacturing led in deal value and count, respectively. 💡 Rise of Private Capital: With regional bank lending disrupted, cash-rich PE firms emerged as alternative funding sources for corporate borrowers. Macroeconomic uncertainty is lifting, signaling a cautious rebound in PE deal-making. With ample dry powder and moderating valuations, the outlook improves, though the PE M&A market's recovery may be gradual. Critical Considerations for PE Deal Makers: - Value Creation: Boost portfolio performance with strategic reviews. - Data Analytics: Unlock new markets and align with core offerings. Read more in the #KPMG comprehensive review of the PE deal #trends in 2023 and what to expect in 2024: https://lnkd.in/gSzT-5eb. #KPMGDealAdvisory #MergersandAcquisitions #PrivateEquity #MarketTrends #EconomicRecovery #StrategicInvesting