After enjoying a decade of low-cost capital that favored growth-oriented strategies, private equity experienced a more challenging year in 2023.
The combination of inflationary pressures, rising interest rates and geopolitical uncertainty inevitably weighed on the overall deal market.
Looking ahead, new investment themes provide grounds for optimism. Artificial intelligence is shaping up to be a major catalyst for private equity, while decarbonization is a long-term structural trend that is likely to offer significant investment opportunities.
From a macro perspective, the Fed’s signaling of potential cuts in interest rates through 2024 is a strong positive and should bring greater stability. However, a large maturity wall is approaching for both companies and funds, and much of the low-cost debt accessed over the last decade will still need to be refinanced at higher rates.
The increase in cost of capital will inevitably impact profitability and test the resilience of companies. That could result in a shift away from growth funds towards turnaround and value strategies.
With the traditional IPO exit route likely to remain out of reach in many cases, a key trend that looks set to continue in 2024 is the rise in secondary transactions.
Healthy fundraising in 2022 and 2023 means there is plenty of capital available for deals; Cambridge Associates estimates there is currently around US$220 billion of dry powder in the global secondaries market, around twice the value of recent transaction volumes.1
Other trends driven by reduced access to IPOs include the use of continuation funds and NAV loans. These are useful as a means of generating capital to fund distributions to LPs, but they can be a cause of tension if not managed carefully and with sufficient transparency.
Overall, 2024 looks set to be a more stable but still demanding year for private equity. In this environment, effective fund administration will be more important than ever to ensure fund managers can focus on the vital task of creating opportunities and dealmaking.
How can we help?
With a proven track record spanning more than two decades, JTC has extensive experience in supporting private equity funds through their entire lifecycle, from key jurisdictions in the BVI, Cayman Islands, Guernsey, Jersey, Luxembourg, Mauritius, South Africa, UK and US.
We provide a comprehensive range of private equity solutions delivered from key onshore and offshore jurisdictions to leading companies investing in a broad range of industries.
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