Private Equity: An Optimistic Outlook in 2024 and Beyond

Navigating Challenging Macroeconomic Waters

The macroeconomic landscape influences financial markets significantly. Interest rate hikes and heightened geopolitical tensions lead to consistent turbulence in public equities, which warrants caution by investors amid fragile confidence. Private equity emerges as a resilient and attractive alternative.

Historical Resilience in Downturns

Historical data shows that private equity offers superior returns during economic downturns, with smaller drawdowns and faster recoveries.^{Source: Hamilton Lane, Bloomberg (01.2023)}

Several key factors contribute to this resilience.

Active management allows private companies to adapt swiftly to uncertain environments through nimble changes.

Low correlation with public markets provides stability for private equity investments during market turbulence.

Long-term focus removes the pressure that public companies face to deliver better results quarterly. Private equity emphasizes long-term value creation, ignoring cyclical downturns. This patient approach yields substantial benefits when economies rebound.

Surge in Secondaries

With the slowdown in mergers and acquisitions and IPOs, secondary transactions are a key tool for quick exits and portfolio diversification. Fund managers use secondaries to meet capital needs and avoid forced sales under unfavorable conditions. The volume of secondary market transactions is expected to reach a record $118 billion in 2023.[1]

^{Strong slowdown in exit activity. Source: EY (Private Equity Pulse, 2023)}

Long-Term Prospect for Private Equity

Private equity remains the investors' top choice. Between 2012 and 2022, private equity assets grew from $3.5 trillion to $12.8 trillion, and are projected to reach $23.3 trillion by 2027.[2] Moreover, the estimated $2.49 trillion in capital available for deployment (dry powder) into private equity this year is twice that of 2018.[3]

Private equity has a promising future. With historical robust growth, consistent outperformance and agile management in changing economic climates, private equity emerges as a resilient asset class. Innovative approaches that leverage artificial intelligence reinforce the outlook for private equity.

Institutions at the Forefront

Institutional investors have already acknowledged the value of private equity investments. They have tripled their portfolio allocations to private equity over the last two decades[4] and nearly 75% plan to allocate more.[5]

In the UK, major pension providers—including Aviva (a multinational insurance company), Legal & General (a multinational financial services and asset management company), Phoenix (the largest long-term savings and retirement business in the UK), and Scottish Widows (an Edinburgh-based life insurance and pensions subsidiary of Lloyds Banking Group)—have allocated 5% of their investments to private equity and early-stage businesses, which could inject up to £50 billion into private equity by 2030, covering two-thirds of the defined contribution pensions market.[6] 

The Bottom Line

The private equity industry is poised to thrive beyond 2023, despite recent challenges. Record dry powder, strong deal flow and renewed investor confidence all point to growth. Institutional commitments reflect a consensus in favor of the asset class, reinforcing its appeal and potential for success.

[1] Lazard

[2] Preqin

[3] SP Global

[4] NYU

[5] BlackRock

[6] investmentweek