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Private Capital 2024: Top PE Trends to Watch For

There is no denying that the private market 2023 was challenging, owing to factors like high-interest rates, geopolitical situations, etc. The speculators are wondering whether 2024 will be an encouraging and brighter year! The experts say that Infrastructure assets, private credit, and secondaries will continue to boom with unstable interest rates. The investors will focus on emerging healthcare, energy, ESG, and more trends. 

Let us explore the private equity industry top trends expected in 2024. 

Private Capital 2024: Top Trends in P.E. Investment  

In 2023, P.E. activity remained slow with high inflation, soaring interest rates, and increased capital costs. The investors waited for the slump in asset valuations. Though some of these factors will continue in 2024, like critical value creation, cash management, and deal structuring are expected to be put under the limelight. 

Here, we jot down the list of top trends in 2024. 

Higher Interest Rates 

In the last five decades, we have seen extreme variations in interest rates. In the 1980s, the interest rate peaked at over 10%. Before and during the pandemic, it started declining significantly and became minimal. The U.S. is still experiencing high inflation rates in electricity, food, natural gas, etc. Due to the Russia-Ukraine conflict and the Israel-Hamas war, there are huge supply chain difficulties. The spike in energy prices will contribute to high inflation. Even the Federal Reserve’s 2024 meeting schedule communicated that the rates may not decline much but can come down to 4% or 5% range by the end of 2024. 

 

Slow market recovery 

There is a scare of global recession in the market, which can create a downward trend in interest rates and inflation. With normalized supply chains and lower commodity prices, the operators do not fear the economic state. The higher rates are not letting free cash flows go easily. There has been a rebound in business activity with better liquidity due to the comeback of traditional lenders. This leads to a rise in the small and medium markets across the U.S., Europe, and Asia. This trend will continue to rise moderately in 2024. 

 

Long-duration Asset Allocation 

According to the private equity insights, there was a huge macroeconomic volatility last year, addressed as ‘narrative volatility’. With extreme volatility in financial assets and fixed income, what will happen to the asset allocation in 2024? 

The risks imply low growth due to the mixed market expectations from recession to overheating to a soft landing. This condition may result in lower bond yields and equity prices without expected earnings. Even the valuations seem disconnected with high bond premia and low equity risk premia. So, most experts assess that asset allocation will be of long duration with cautious market equities. 

 

High-net-worth individuals will continue 

2023 was a year of growing focus on high-net-worth individuals and retail investors. The same is expected to continue in 2024. There will be significant growth in this area. Some anticipate that individual investors will hold trillions of assets under management. 

 

The boom in private credit 

This is one of the top trends to continue in 2024. The borrowers are encouraged to look for different lending by increasing rates and aggressively changing public markets. The private credit market might grow by double. 

 

Regulatory actions to continue 

In 2024, there will be an increased regulatory focus on non-professional investor marketing. The private fund managers will focus on ESG and SFDR. People will also talk about culture and individual accountability. 

 

IPOs Resurgence 

With the lack of IPOs in the last two years, the U.S. market is hoping for a resurgence in IPOs in 2024. The companies might react even when there are few opportunities for an IPO. Those looking for exit processes are considering dual track as a pragmatic possibility. 

 

Excellent tech M&A opportunities 

2024 will be great for tech mergers and acquisitions. The new business ventures looking for fundraising and facing a tough time due to the high interest rates and cautious V.C. valuation can resort to options. Even public and private tech companies can use their balance sheets and get capital for customer acquisition, product offerings, distribution channel addition, and more. 

 

Wrapping up 

We expect to see these trends in private fundraising in 2024. Despite having a stronger economy, there will be high rates, low private equity returns, expensive borrowing, and low valuations. Last year, the funds declined, but there are signs of improvement this year. Rising investor sentiments can make the fund closings higher in 2024. With high regulatory costs, according to the new SEC private fund reform, there will be private equity consolidation. Those in private equity careers must explore more to stay updated with the latest trends!