Insights into Private Equity Careers and Venture Capital Careers

The 2024 Global Private Capital Fundraising Report by SS&C Intralinks reveals a landscape characterized by resilience and strategic adaptation in response to economic fluctuations and market challenges. In 2023, global fundraising surpassed expectations, breaking the $1 trillion threshold with $1.3 trillion raised across 3,411 funds. This marked a shift from the exuberance of the pandemic era towards a more moderated approach, mirroring pre-pandemic levels.

Fund managers have secured nearly $402 billion across 721 funds year-to-date (YTD) in 2024, compared to $460.9 billion in the same period last year. Despite a slight downturn, the sustained momentum in private equity (PE) and direct lending suggests that fundraising in 2024 may exceed the previous year’s figures. The data highlights a few outperforming fund strategies, particularly with experienced managers at the helm, indicating that creativity and adaptability are crucial for overcoming fundraising challenges.

Market Trends: A Shift in Strategy and Regional Performance

Fundraising activity in 2023 saw a 16.6 percent year-over-year (YoY) decline in capital raised. However, this does not equate to a negative outlook. The $1.3 trillion raised mirrors the historical median, demonstrating a return to pre-pandemic norms. North American and European fund managers performed relatively better, raising $836.3 billion and $262.9 billion, respectively. Rising interest rates, lower valuations, and geopolitical headwinds contributed to a challenging exit environment, particularly affecting opportunistic fundraising.

Private equity emerged as the preferred strategy, constituting 43.7 percent of capital raised in 2023. In contrast, real estate, private debt, and venture capital (VC) funds experienced YoY decreases. The focus on private equity indicates a shift in investor sentiment towards more stable and mature investments amid economic uncertainty. Additionally, real asset fundraising saw a significant increase in median fund size, reflecting a pivot towards risk aversion and diversification.

Private Debt and Direct Lending: Resilience Amid Competition

Private debt demonstrated resilience, with only a 15.3 percent YoY drop compared to the overall 16.6 percent decline in fundraising activity. The rise of private credit is overshadowing traditional bank lending and public debt markets, offering borrowers more flexibility and competitive rates. Direct lending remains the predominant fund type, driven primarily by North American fund managers. Despite a slight outflow of private debt into public debt markets, private credit remains a strong contender due to structural variables that impede riskier borrowers from accessing favorable terms through traditional bank lending.

Secondaries: A Popular Strategy for Liquidity and Stability

Secondaries funds have gained popularity as a solution to the denominator effect and the challenges of selling assets in a tough exit environment. With $81.7 billion raised across 93 funds in 2023, secondaries fundraising saw a significant uptick, reflecting the need for liquidity among limited partners (LPs). The trend continued into 2024, with $33.2 billion raised across 17 funds. Secondaries offer a means for LPs to free up capital and reduce exposure to private equity, highlighting their importance in a landscape where traditional exit channels have run dry.

Looking Forward: Digitalization and Strategic Realignment

The report underscores the importance of digitalization and strategic realignment for general partners (GPs) to attract and retain LPs while boosting returns amid uncertainty. A record-breaking 40 percent of GPs hit their fundraising targets, with only 14.1 percent missing targets as of Q2 2024. This success suggests that GPs are adopting creative solutions to navigate the slower fundraising environment. Integrating digital solutions for data management, operational efficiency, and regulatory compliance can enable managers to remain agile and prepared for future capital mobilization.

Summing Up

In conclusion, the 2024 Global Private Capital Fundraising Report highlights the industry’s resilience and adaptability in the face of economic challenges. Fund managers are strategically shifting their focus, leveraging experienced managers, and adopting digital solutions to ensure continued success in a dynamic and uncertain market.

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Every quarter private equity data provider Pitchbook releases their accounting of the different market segments. Here’s a review of what they found for private equity’s (PE) middle market.

Executive Summary

In Q1 2024, US PE middle-market dealmaking showed a slight improvement over Q1 2023, following a peak of activity in Q4 2023. The increase in deal multiples in Q1 2024 indicated a stabilization of the market, supported by lower borrowing costs and higher public market valuations. The report suggests that while there is an increase in activity, the market has not yet fully recovered, as evidenced by constrained buy-side activities due to a lack of sellers.

Deal Activity

Middle-market deal activity remained stable in Q1 2024, continuing the trend from Q4 2023. While the overall deal value was ahead of Q1 2023, it was still below the highs of 2021. PE firms are focusing on bringing their most attractive assets to the market, which has resulted in a narrowed scope of deal flow. This selective approach is crucial for maintaining higher valuations and successful deal completions.

Valuations

Deal multiples for middle-market PE deals rebounded in Q1 2024. The median EV/revenue multiple rose to 2.2x from 2.0x in Q4 2023, and the median EV/EBITDA multiple increased to 12.7x from 11.0x. This recovery in valuations is attributed to lower borrowing costs and strong public market performance, which have provided a more favorable environment for PE transactions.

Exit Activity

Exit activity in the middle market showed signs of recovery, with a notable increase in take-private transactions. In Q1 2024, 15 take-private deals were announced or completed, up from 8 in the previous quarter. This trend is driven by the attractive valuations of small-cap public companies and reduced market volatility. The report highlights that many companies that went public during the 2020-2021 surge are now reverting to private ownership due to adjusted valuations.

Fundraising and Performance

Fundraising in the middle market remains strong, with PE firms continuing to attract significant capital. However, the report notes that the overall returns for private equity in 2023 were lower than the historical average, reflecting the broader market conditions. The concentration of returns in a few large-cap stocks underscores the need for a broader market recovery to enhance PE performance.

Lending and Debt Markets

The report discusses the impact of the lending environment on PE activity. The average debt/value ratio for new jumbo loans backing leveraged buyouts (LBOs) decreased significantly, favoring middle-market deals due to their smaller deal values and access to private credit. The syndicated loan market saw increased activity, providing much-needed relief to PE borrowers through lower borrowing costs and more competitive lending conditions.

Sector Focus

The report includes a spotlight on the fintech sector, noting increased interest from PE firms in middle-market fintech companies. This trend reflects the growing importance of technology and innovation in driving value in the middle market.

Conclusion

Overall, Pitchbook’s Q1 2024 US PE Middle Market Report provides a cautiously optimistic outlook for the middle-market PE space. While challenges remain, such as constrained deal flow and the need for broader market recovery, the report highlights positive signs in deal multiples, fundraising, and lending conditions. The continued focus on high-quality assets and strategic sectors like fintech suggests that PE firms are well-positioned to navigate the current market environment and capitalize on emerging opportunities.

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