Private equity activity is on track to match or exceed 2023 levels, despite a challenging year, with deal-making reaching 69% and 74% of last year’s volume and value, respectively, by Q3, according to a new report by Preqin.
The Global Report 2025: Private Equity, highlights that while the industry grapples with headwinds, surveyed investors and fund managers remain cautiously optimistic about a better 2025.
Private equity fundraising continues to face pressure from higher interest rates and global economic uncertainties. By the third quarter of 2024, the sector raised $482bn across 646 funds, buoyed by growing interest from non-institutional investors, including family offices and wealth managers. These groups joined traditional institutional backers such as insurance companies and asset managers, helping sustain fundraising momentum.
Hever, the number of funds seeking capital surged to a record 4,835, targeting $1tn in aggregate. Despite this growth, the total targeted capital fell by 14%, reflecting a shift toward smaller fund sizes. Preqin analysts project that while fundraising may remain stagnant compared to 2023, stabilisation of interest rates could trigger growth in the coming years.
Deal-making activity in 2024 showed signs of recovery but remained subdued overall. Lower valuations driven by higher discount rates weighed heavily on exit activity, with the total volume of exits by Q3 2024 reaching 80% of 2023 levels. However, aggregate exit values lagged behind, hitting just 54% of last year’s total, as larger deals faced significant hurdles in the high-rate environment.
Smaller exits proved more achievable for fund managers, who adapted to the challenging landscape by focusing on deals less dependent on valuation multiples. Preqin’s analysis suggests that private equity deal volume may be normalising around the five-year average.
Improved macroeconomic conditions have bolstered investor confidence with the start of a monetary-loosening cycle in 2024, coupled with easing inflation concerns, shifting sentiment significantly. A recent survey found that the proportion of investors citing inflation as their primary challenge dropped from 27% in 2023 to just 7% in 2024, while concerns over interest rates fell from 58% to 36%.
Looking ahead, small- and mid-market buyout strategies have emerged as the most favoured among investors for the next 12 months, overtaking secondaries. These strategies align with the industry’s pivot toward smaller, more manageable deals.
Victoria Chernykh, Associate Vice President of Research Insights at Preqin, underscored the mixed sentiment as the industry approaches 2025.
“When we look at 2024 in review, we see that investors and private equity managers alike appear more optimistic as we head into 2025. However, fund managers remain cautious, wary of regulatory and geopolitical risks, as well as asset valuations. The long-term demand for higher and uncorrelated returns compared to public markets should give the industry a head start.”
As the private equity sector continues to adapt to a shifting economic landscape, industry players remain hopeful that 2025 will bring renewed growth and stability. The combination of easing rates, resilient investor sentiment, and strategic adjustments may pave the way for a stronger year ahead.
