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Key takeaways

  • Alternatives managers turn to private wealth for next growth phase.
  • Markets reopen with return of IPO and deal activity.
  • Investor distributions pave the way for future fundraising.
  • Investor demand for private markets remains strong as return outlook picks up.

The first quarter of this year marked something of a milestone for Blackstone, and by extension the private markets industry. For the world’s largest alternatives asset manager, Q1 was a record quarter for private wealth inflows, with the firm raking in $8 billion from the channel. Over a third ($2.7 billion) went into its long-awaited private equity-focused vehicle for wealthy individual investors, Blackstone Private Equity Strategies (BXPE), in its debut quarter.

Rivals including Apollo, KKR, Carlyle Group and Brookfield are likewise turning to wealthy investors with similar funds, moves they hope will counter a slowdown in commitments from institutional limited partners, many of which are capital-constrained or bumping up against allocation limits.

“The opportunity [for private capital firms] to crack private wealth is coming very fast,” said Hugh MacArthur, Chairman of the Private Equity Practice at consultancy Bain & Company, in a recent interview with Preqin News. “If you’d asked me about this three years ago, I’d have said maybe in 10 years. But it’s happening right now.”

Access to a broader range of equity opportunities and outperformance prospects are primary factors driving the private wealth segment into alternatives, Preqin reported.

Private market conditions realign

The shift comes at an inflection point for the industry.

The sharp step up in interest rates post-pandemic provoked a two-year slowdown in takeovers and initial public offerings, leaving private equity groups with a record $3 trillion stockpile of unsold investments in 2023. Conditions though are starting to ease.

IPO activity in European and US markets has surged in the first four months of 2024. Deal value in Europe jumped 308% year-over-year to $7.4 billion. US companies have raised $7.2 billion through listings year-to-date, 175% more than a year ago. With the bright start to the year, “the momentum for PE firms to capitalize on the IPO market is rapidly gaining traction,” stated EY’s Global IPO Trends Q1 2024 report.

M&A activity is seeing a nascent rebound too. Global M&A value climbed 30% to $690 billion, although the total number of deals announced fell 31%. Dealmaking in Europe enjoyed the strongest recovery, with deal value hitting $127 billion, a 60% rise from a year earlier. Blockbuster deals are making a notable comeback, with the number of takeovers worth at least $10 billion more than doubling in the first quarter on the year before.

PE/VC deal activity returns

Global private equity and venture capital deal value similarly grew in the first quarter. According to S&P Global Market Intelligence data, deal value climbed 5% to $131 billion, despite the number of transactions sliding 13% to 2,880. Given the record amounts of dry powder funds have, more deals will likely follow as confidence returns.

“The increase in deal value during the first quarter underscores the upbeat sentiment among private equity firms in 2024,” the S&P Global authors noted. “According to Market Intelligence’s 2024 Private Equity and Venture Capital Outlook, 60% of the general partners surveyed expressed optimism about deal activity in 2024, a jump from 34% in the previous year’s survey.”

KKR co-chief executives Scott Nuttall and Joseph Bae are among the cheerleaders. In a recent interview, they told the Financial Times they see an improvement in activity for taking portfolio companies public, and are holding talks with large corporations and other private equity buyers about potential asset sales.

A resurgence in IPOs and other exit opportunities will enable GPs to return cash to investors and pave the way for future fundraising, with nearly two-thirds of PE and VC firms surveyed by Acuity Knowledge Partners planning to raise funds in 2024, up from 22% of respondents in the last survey.

Investors eager for alternatives

Investor demand certainly appears supportive. New research from international asset management company Managing Partners Group found more than three-quarters of institutional investors and wealth managers will increase allocations to illiquid assets over the next five years. A Carne Group study of wealth managers and institutional investors reported 71% expect to boost their allocation to private equity by 10% or more in 2024, with 70% saying the same about private debt.

According to the Preqin article, demand among the private wealth segment straddles the full range of private capital strategies. Private debt is especially popular at present. Managers are benefitting from higher interest rates and reduced bank appetite for corporate lending, providing investors with higher prospective yields than they can get in comparable public credit. Listed alternative asset managers’ 2023 results showed almost all private debt strategies and markets delivered double-digit returns last year.

VC funds could also be well poised. US venture fund returns remain negative but are trending up once again, noted the latest PitchBook-NVCA Venture Monitor. VC-backed company valuations have begun to rise, with much of the positive performance stock markets have enjoyed in recent quarters yet to be factored into VC fund marks. “Funds that make adjustments based on public comps will likely be able to provide LPs with rosier return metrics in the 2024 fundraising cycle,” it said.

And with VC funds holding record amounts of dry powder, they have the ready firepower to take advantage of the next upswing. Investors will need to be similarly ready if they are to profit.

This content is for information purposes only. Treble Peak does not provide investment or tax advice, and information on this website should not be construed as such. Potential investors should seek specialist independent tax and financial advice before investing in any alternative investment.  Past performance is not a reliable guide to future returns. Your capital is at risk.

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