Largely, 2024 has continued the themes of 2023: Fewer new fund launches and longer exit periods.
Despite this, the brightest minds in the space believe brighter days are ahead. According to Preqin, private markets are expected to grow from $13 trillion today to more than $20 trillion by 2030.
Now that the headwinds that plagued the industry are behind us – the U.S. presidential election and an uncertain rate environment – the tide is turning. Key drivers of the recovery are a restart of M&A and IPO activity and continued interest rate reductions.
While still below the record highs of 2021, deal activity in 2024 was up 21% compared to 2023, signaling renewed momentum in private equity markets. As we look toward 2025, uncertainty remains, but signs of a more active exit market and increasing fund distributions are leading to optimism.
The middle-market is poised to benefit from this upswing. According to research from Pitchbook, transactions valued between $25 million and $1 billion present compelling opportunities where lower leverage and a focus on operational growth drive value creation for private equity firms.
This momentum may gain additional traction in 2025, with a more favorable M&A market anticipated under potential deregulation by the new administration. Additionally, in an environment of moderated yet still elevated interest rates, middle-market companies with lower leverage profiles are well-equipped to sustain organic growth and lasting value.
Private equity firms have navigated a challenging fundraising environment in recent years, with 2024 seeing significantly fewer fundraises than the peak levels of 2021. Several factors, including extended timelines for fund closings, fewer fund launches, and reduced contributions from mega-funds, are contributing to what may be the first notable decline in private equity fundraising in five years.
With the median time to close a private equity fund now stretching to 16.7 months, fundraising pressures are likely to persist into 2025. However, early indicators suggest a more favorable environment than 2024, offering cautious optimism for GPs and LPs alike.
Exit activity remains a pivotal driver in the private equity fund life cycle. Realizations generate distributions to LPs, who, in turn, often reinvest the capital into new fund commitments. Should 2025 bring a significant uptick in exit activity, these distributions could provide a much needed boost to fundraising momentum. Additionally, the Federal Reserve’s actions aimed at fostering a soft landing through rate cuts could further accelerate the pace of exits, leading to a more robust fundraising environment in the year ahead.
While challenges persist, the private equity landscape is poised for a rebound as market dynamics shift. A combination of improved exit activity, supportive monetary policy and investor confidence could create a more favorable fundraising environment in 2025.
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