Five private equity predictions for 2024 (2024)

FAQs

Five private equity predictions for 2024? ›

Private equity firms will focus on five key trends in 2024. Deploying artificial intelligence will lead the way, followed by investment in infrastructure particularly related to energy projects. Value creation will also be a priority as firms seek to improve strategic and operational efficiency.

“Going into 2024, we believe the record-high dry powder reserves suggest potential for significant PE activity as values slowly recover and conditions improve…”

According to data collected by Preqin, April 2024 marks the first time since December 2014 that dry powder declined across the private equity industry. Granted, you may need to squint to notice the difference because the current mark is $3.911 trillion, which is only $400 million less than the level at the end of 2023.

Global dry powder across private asset classes has been stacking up for almost a decade and set another record in 2023. The potential for easing rates and the need to put money to work are why we believe investments may improve incrementally in 2024 (unless, of course, the macro environment takes a turn for the worse).

Our results indicate that the market expects unlisted private equity funds to earn abnormal returns of approximately 1% per year. We also find that the market expects listed private equity funds to earn zero or marginally negative abnormal returns net of fees.

Driven by renewed confidence and increased access to capital, private equity dealmaking is set to pick up during 2024. As macroeconomic headwinds steady and financial markets continue to reopen, the outlook for private equity (PE) M&A in 2024 looks promising.

Heading into the second half of 2024, venture capital investors remain cautious as they acknowledge persistent challenging dynamics in the landscape. While dry powder reserves have reached record highs, investors are wary about deploying capital with certain recent macroeconomic factors still fresh in mind.

Based on the metrics laid out here, we can examine some of the very best PE firms and how they emerge from the data very successfully. In turn, these are KKR, the Blackstone Group Inc. (Blackstone), CVC Capital Partners (CVC), and the Carlyle Group Inc (Carlyle). Let's see how these top firms fare on various criteria.

U.S. private equity aggregate deal value declined to $645.3 billion in 2023, down 29.5 percent from 2022 and 45.5 percent from 2021, as deal makers navigated dislocation in M&A markets catalyzed by higher interest rates and tighter debt markets¹.

The latest data from 2011 to 2021 shows funds with a narrow investment focus or niche delivered an average IRR of 38 percent and a MOIC of 2.3x net of fees. During the same period, broadly diversified funds of all sizes in North America averaged an 18 percent IRR and 1.7x MOIC.

Does private equity do well in a recession? ›

Private equity can be a very well-performing asset class during a recession. By understanding the risks and opportunities and having the right processes and technologies in place, your firm can punch above its weight and deliver high-quality returns to its LPs.

According to McKinsey's latest Global Private Markets Review, private markets entered a slower era in 2023, with macroeconomic headwinds, rising financing costs and an uncertain growth outlook weighing on fundraising, deal activity and performance.

Private equity exit options and opportunities

Those who wish to broaden their horizons or simply desire a change of pace will often migrate to similar sectors such as hedge funds or portfolio management. Additional exit options include: Being hired as a chief analyst by another firm.

Private equity firms will focus on five key trends in 2024. Deploying artificial intelligence will lead the way, followed by investment in infrastructure particularly related to energy projects. Value creation will also be a priority as firms seek to improve strategic and operational efficiency.

Key Takeaways. Private equity produced average annual returns of 10.48% over the 20-year period ending on June 30, 2020. Between 2000 and 2020, private equity outperformed the Russell 2000, the S&P 500, and venture capital.

Targeted Returns

On average, private equity firms target roughly a 20% to 25% internal rate of return (“IRR”) and a 2.5x to 3.5x multiple on invested capital (“MOIC”).

Falling interest rates and earnings growth could be a bullish combination for stocks. However, some analysts are concerned about bloated valuations in the technology sector, and the 2024 U.S. presidential election could create some major volatility in the market.

The private equity (PE) industry is continuing to grow at a rapid pace. PE employs 11.7 million people – nearly 3 million more than just two years ago. There are more than 18,000 PE funds – a nearly 60% increase in just the last five years.

Key Takeaways. 2024 could extend the trend of rewarding years in direct lending strategies, in our view. While higher-for-longer interest rates, slower growth and stickier inflation may present challenges for some borrowers, we don't expect credit losses to become unhinged.