As the second half of 2024 unfolds, the private equity market is showing resilience. Limited partners (LPs) are refining their strategies to better adapt to the changing economic environment, while general partners (GPs) are strategically optimizing their exit plans. The private equity secondary market is also becoming increasingly important in providing liquidity, while the ongoing integration of ESG principles and the growing emphasis on AI continue to shape the industry’s evolution.

Q2 Sees a Recovery in Private Equity Deal Value

Private equity deal activity experienced a noticeable rebound in Q2 2024. According to PitchBook’s Q2 2024 Global PE First Look report, the global value of private equity transactions increased by 7.9% in Q2’24 compared to the first quarter¹, signalling renewed confidence among investors and GPs.

Quarterly Global PE Deal Activity

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Although this recovery is encouraging, we do recognize that a rebound of one quarter does not signify a new trend. While indications are that this may still materialize over the coming months, current deal values are more in line with the 2017-2020 period, where activity stabilized at a quarterly rate of around $319bn¹. However, reaching the remarkable peaks seen during 2021-2022 would be tough – a time marked with very low interest rates and major stimulus efforts.

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Evolving LP Strategies Amid Market Shifts

As 2024 progresses, limited partners (LPs) are maintaining a cautiously optimistic outlook. The SSC Intralinks 2024 LP Survey, in partnership with Private Equity Wire, reveals that 62% of LPs plan to boost their private equity allocations in the upcoming year².

This decision is influenced by the potential for enhanced returns as interest rates start to trend lower, as well as a growing desire to build exposure in sector-specific funds and co-investment opportunities. LPs are increasingly adopting a more sophisticated approach, aiming to diversify their portfolios by targeting high-growth sectors within private equity. This strategic shift highlights the continued attractiveness of private equity as a fundamental element of institutional investment strategies.

Reduced Hold Times Reflect Stronger Exit Markets

One noticeable, rising trend within the private equity sector is the shortening of holding periods for portfolio companies. According to data from PitchBook, the median holding period for private equity assets that were sold in the first half of 2024 saw a sharp reduction to 5.8 years from seven years in earlier periods³. This decrease suggests that general partners (GPs) benefit from favorable market conditions that enable quicker exits from investments, allowing for more efficient realization of gains. The uptick in exit activity indicates growing confidence in the market’s potential to generate returns, despite ongoing volatility.

Median PE buyout hold time (years)

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Growth and Liquidity in the Secondary Market

The secondary market was the fastest growing segment within private markets last year. That trend appears to have continued in the first half of 2024, with secondaries seen as an important source of liquidity. During this period, data shows that estimated transaction volumes have soared to $72bn, compared to $42bn in H1 2023⁴, highlighting the role of secondaries as an effective portfolio management strategy for both LPs and GPs.

Such growth has been primarily driven by managers searching for more liquidity, a need for portfolio rebalancing and a rising demand for high quality assets at appealing valuations. This growth is reshaping the private equity landscape, offering investors enhanced flexibility and a broader range of options, particularly for those who previously faced challenges in accessing liquidity.

Key Trends: ESG and AI-Driven Investments in PrivateEquity

From a sector perspective, we have noticed that private equity firms have been increasingly focused this year on two areas:

1.     The adoption of Environmental, Social, and Governance (ESG) principles.

2.     A targeted focus on AI-driven technology investments.

Indeed, ESG-focused funds now make up over 20% of the total private capital being raised, reflecting a significant shift toward sustainability and responsible investing practices.⁵

At the same time, investments in AI technologies are gaining momentum, particularly in sectors like healthcare and technology, where  innovation is driving significant advancements. AI is transforming healthcare by enabling breakthroughs in diagnostics, treatment planning, and personalized medicine, positioning it as an area of interest for private equity investment. A recent global investor survey shows that 40% of investors consider technology and healthcare to offer the most promising investment opportunities in 2024⁶.

Private equity firms will continue to target high-growth sectors with the prospect of greater value over the long term. This strategic focus on AI and technology-driven investments underscores a broader trend among private equity firms to pursue sectors with high growth potential and long-term value. As these technologies continue to evolve, the potential for substantial returns makes them increasingly attractive to investors. By aligning with these trends, private equity firms are positioning themselves to capitalize on sectors poised for significant growth and sustained value over time.

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Outlook for H2 2024: Building on Positive Momentum

As we enter the second half of 2024, the private equity market appears well-positioned to continue building on the positive trends observed in Q2. The rebound in deal activity, suggests that there are promising opportunities on the horizon. With improving asset valuations and a growing focus on AI and ESG-driven investments, the market may see continued growth in these high-potential areas.

However, it's important to note that while the market seems poised for a strong finish, there are still challenges to navigate. To capitalize on the opportunities that may arise, staying informed and responsive to evolving trends will likely be crucial.

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Author

Saad Adada, CFA

_Sources: ^‍

^{1 https://pitchbook.com/news/reports/q2-2024-global-pe-first-look}

^{2 https://www.intralinks.com/resources/publications/ssc-intralinks-2024-lp-survey?utm_source=pei&utm_medium=partner-referrals&utm_content=newsletter&utm_campaign=7015d000002hJIa}

^{3 https://pitchbook.com/news/articles/pe-hold-periods-decline-signaling-improved-exit-activity}

^{4 https://www.moonfare.com/blog/mid-year-review-private-equity-2024}

^{5 https://www.preqin.com/about/press-release/esg-funds-take-over-one-fifth-of-all-private-capital-fundraising-in-2024-by-April-preqin-reports}

^{6 https://www.adamsstreetpartners.com/insights/2024-global-investor-survey/}

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