Private markets have shown remarkable resilience and innovation in the face of unprecedented challenges and opportunities in the past few years. From the pandemic to the digital transformation, from the climate crisis to the geopolitical shifts, private market players have had to adapt and evolve to stay ahead of the curve. In this series of articles, we explore some of the global trends that are shaping the private market landscape in 2024 and beyond. Our Funds and Asset Management Partner, Kamar Jaffer, shares her insights and perspectives on topics such as fundraising, digital disruption, infrastructure, private debt, GP consolidation, retailisation, secondaries, GP stakes, co-investments, and special opportunities.
Fundraising: selectivity is name of the game
Total private capital fundraising remained stable at USD1.1tn in 2023 and is expected to stay the same in 2024. The industry faces a range of ongoing challenges, including inflation, rising interest rates, higher debt financing costs, volatility of public markets, supply chain disruptions, and labor challenges.
Despite this, fundraising is expected to reach USD1.5tn in 2028, surpassing 2021's record year (Preqin's Future of Alternatives 2028 report). In 2023, North America continued to lead global fundraising, accounting for 44% of the total, while multi-region funds raised 38%. The Asia Pacific and Europe trailed with 10.6% and 6.5%, respectively.
According to PitchBook Data, private capital's fundraising windows continued to increase, reaching an average of 15.8 months in the first half of 2023. This is slightly longer than 2022 (15.4 months) and has increased from 2008 (13.1 months). Fund managers are continuing to revert to their investors with requests to extend the fundraising timeline. We’re also seeing sponsors seeking flexibility in the fund documentation to put in place net asset value (NAV) facilities and perform GP-led transactions and continuation funds.
As a result, investors continue to opt for established managers with a proven track record of navigating diverse market conditions. The top 25 competitors, which secured over a third of the USD506bn of new capital allocated to private equity in the first nine months of 2023, tend to be big, well-known firms that offer multiple strategies to suit different investor profiles. Emerging managers have struggled to compete and are carving out a niche through their specialism.
Private capital firms are seeking capital from new sources, such as high-net-worth individuals, insurers, and non-US investors, including the Middle East, due to investor constraints such as over-allocations, the denominator effect, lack of exits/realisations and a steep decline in fund distributions. We’re seeing managers using various methods to raise capital (e.g. offering a co-invest opportunity or launching a side car vehicle alongside their main fund).
This aligns with what we are seeing in the Middle East region where SWFs, institutional investors and family offices generally rationalising and deepening their relationships with managers whom they know across product lines and geographies. They are selectively re-upping with managers.
We anticipate these trends to continue in 2024, although there are bright spots (e.g. private credit, GP-led secondaries and infrastructure).
