Last year was a tumultuous one for private equity investors, who faced ongoing liquidity challenges as dealmaking and exit activity remained at relatively low levels. As we head into 2025 and as macroeconomic conditions begin to stabilise, LPs appear to be more optimistic.
Here are LPs’ predictions on some of the key themes in private equity this year.
What will happen to PE dealmaking in 2025?
“As we are in an interest rate cut cycle, we have entered a period which fundamentally is positive for private equity. During 2025, we expect to see an acceleration of dealflow as the amount of dry powder in the market is at high levels.” – Damir Ratkovic, head of alternative investments at SEB Life and Pension.
“There’s going to be a pickup in M&A… It’s possible we see rates go up, but I think it’s more likely we see rates reach a steady state or potentially go down a bit from here. With all that together and just given the lack of activity and the growth of the pipeline buying for M&A, we think [2025] is going to be a big year for activity.” – Jimmy Caraluzzi, investment specialist at Penn Mutual Asset Management.
“We anticipate that 2025 will bring a significant pivot to the buyout market. Several years of muted exits have resulted in large amounts of accumulated assets with GPs and limited liquidity to LPs. The combination of a buoyant credit market, large amounts of GP dry powder and favourable equity markets should result in strong transaction volume.” – Simon Marc, global head of PE and strategic partnerships at PSP Investments.
“We expect that the dam is going to break in the US for PE dealmaking. The mid-market remains an area we are focused on at CDPQ, including increasing partnerships with leading GPs.” – Martin Longchamps, head of private equity at Caisse de dépôt et placement du Québec.
What will happen to the fundraising market this year?
“There are many funds in the process of fundraising, and a handful of successful firms that are taking high proportions of the cash available, and others that are lagging. In between, there are a huge number of firms struggling to close fundraisings. The industry is shifting and reaching a tipping point – a kind of growth crisis. GPs are thinking about how they will manage their growth and their expansion. Do they need a GP stake or consolidation in that market? They know they need more resources and capital to grow.” – Jessica Sellam, head of private markets group at Rothschild & Co.
“Fundraising for PE will stay robust, as investors will continue to allocate large sums to the asset class driven by its ability to provide higher returns than in the public markets. In a lower-growth environment, investors are likely to focus even more on specialised funds with strong [unique selling propositions] – for instance, sector specialists who can leverage deep industry knowledge and expertise to create alpha. Additionally, access to the PE asset class for smaller investors facilitated by wealth managers and specialised private equity distribution online platforms will further provide capital to fund managers.” – Philippe Roesch, managing partner at Riam Alternative Investments.
What will happen to exits and distributions?
“Distributions will pick up in the mid-market but will likely remain slower at the large end. However, exits will not be at the typical uplifts to carry value that we are used to, as we are starting to see exits at par more common for high-quality assets.” – Jenny Newmarch, global head of private equity at Aware Super.
“Although we may see some easing of the gridlock in traditional exit routes next year, the private equity industry has undergone a significant shift in its approach to returns… LPs are increasingly focused on whether assets can be realised at their current valuations. As a result, many are moving beyond IRR as the sole measure of a fund’s success. Instead, the distribution to paid-in capital ratio… will gain increasing importance. We view this growing focus on DPI as a positive development, aligning GPs’ and LPs’ expectations around the core purpose of private equity: generating real, cash-on-cash returns.” – Brooks Harrington, head of North America at Federated Hermes.
“2023 saw PE distributions at their lowest level since the GFC – probably the biggest contributor to the continued challenging fundraising environment… In a (hopefully) more benign economic environment, many portfolio companies will find it easier to grow into their valuations and enhance their exit optionality. There’s a very large PE inventory for GPs to address.” – Merrick McKay, head of private equity at Patria Global Private Market Solutions.
