As 2024 draws to a close, the private equity landscape is showcasing a unique convergence of challenges and opportunities. Schroders Capital's Q4 2024 Private Equity Lens provides a view of the market dynamics, highlighting key trends, performance metrics, and areas of growth potential.

1. A Shift in Fundraising Dynamics

Private equity fundraising in 2024 has seen a significant correction, with a cautious approach defining the market. While aggregate fundraising levels remain below the peaks of 2021–2022, this slowdown signals reduced competition and more attractive entry valuations. For investors, this environment creates fertile ground for identifying high-potential assets at reasonable prices.

Fundraising activity reflects a healthy moderation, positioning the market for steady returns in 2025.
A recalibration in expectations could foster greater discipline in deal selection and portfolio construction.

2. Steady Deal Activity with an AI-Led Upsurge

Despite global economic headwinds, private equity deal-making has maintained momentum. Notably, the venture capital segment is experiencing a resurgence, driven by high-valuation rounds in artificial intelligence (AI). This trend underscores the sector's capacity for innovation and adaptation in a fast-evolving market.

AI-related investments have propelled Series C valuations to approach 2021 highs.
Small- and mid-cap buyouts are trading at attractive discounts, providing a significant value proposition for investors.

3. Exit Markets Stabilizing

Exit activity has begun to stabilize, particularly in sponsor-to-sponsor deals, even as trade sales struggle to regain momentum. This shift is accompanied by record secondary market activity, as Limited Partners (LPs) seek liquidity amid weaker exit conditions.

Stabilization in exit markets provides reassurance for fund managers and investors.
The secondary market is poised to achieve $140 billion in deal volume by year-end, reflecting its role as a vital liquidity avenue.

4. Buyout Multiples and Valuations

The recalibration of buyout multiples offers a favorable backdrop for investors. Small- and mid-sized buyouts are priced significantly lower than large-cap counterparts and public equities, creating a compelling case for allocation to this segment.

Average entry EV/EBITDA for small- and mid-sized buyouts stands at 7.7x, a notable discount compared to large buyouts at 12.1x.

5. Resilience in Private Equity Performance

Private equity funds have demonstrated robust resilience, with buyout and venture capital funds returning to positive performance territory. This stability contrasts sharply with broader economic volatility, reinforcing private equity's appeal as a long-term asset class.

Buyout funds have delivered steady, positive returns since 2022.
Venture capital funds have rebounded from the lows of 2022, driven by sectoral innovation.

6. The Role of Liquidity in a Challenging Market

The heightened activity in the secondary market underscores the importance of liquidity for LPs navigating a constrained exit environment. With record volumes anticipated in 2024, this segment is expected to remain pivotal in private equity strategies.

Preparing for a Promising 2025

As private equity activity stabilizes, the industry is primed for growth opportunities in 2025. From recalibrated valuations to AI-driven innovation, the market offers fertile ground for informed investors. By navigating these dynamics strategically, stakeholders can capitalize on the evolving private equity landscape.

This article leverages data and insights from Schroders Capital's Q4 2024 report, offering a forward-looking perspective on the trends shaping the private equity sector. For those positioned to act decisively, the next wave of growth is within reach.

Download the Report here:

https://www.schroders.com/en/malta/professional/insights/schroders-capital-private-equity-lens-q4-2024/