Private Capital Seizes its Opportunity as Private Equity Rallies in 2024

28 February 2024

Suntera Global’s Ian Horswell, Global Head of Business Development – Funds, looks at the impact of a high interest rate environment on the private equity space and explores how the market continues to rally and find new opportunities as we head through 2024…

Private equity deal flow was down in 2023 – what are the implications of that in the early part of 2024?

In a similar way to what we have seen across the alternatives spectrum, private equity has not been immune to the impact of rising interest rates and the inflationary environment across 2023. 

Transaction deal flows have really slowed down – and that has put us in quite an interesting position as we move through 2024. In particular, it means that LPs are sitting, in some cases, on a fair amount of unused capital, ready to move as soon as the market presents an opportunity – and we’re beginning to see some of that movement now, though deployment of capital is still slow. If markets continue to improve and rates plateau, we should see some sort of acceleration in both deal flow and deal size further down the line this year.

So where are the opportunities in this new look landscape?

Sitting on capital and waiting for opportunities is all well and good – but GPs can only sit on capital for so long. With that in mind, we’re seeing some of the larger managers put capital into smaller managers, who are perhaps nimbler and plugged into niche opportunities, to at least maintain some momentum, albeit on a smaller scale. 

We’re also seeing a rising interest in what we could perceive as the more ‘dynamic’ areas of the market – tech funds are still raising quite successfully, for instance, while ‘proper’ ESG opportunities, where there are really robust, solid credentials that stand out in what is quite a complex and confusing space, remain popular. These are perhaps all smaller scale, but they help maintain activity and pave the way for more big ticket activity later this year.

The private debt and credit market appears to have gained attention in recent months. Why is that?

Private credit has taken on the some of the slack of the PE market, and we’ve seen more credit and debt fund deals as the market has looked to find more flexible lending in the high interest environment. It’s without doubt been one of the most active areas of the sector.

In tandem with that, we’ve also seen special situation funds provide good opportunities, which managers are using to raise funds to purchase equity opportunities where companies need to pay off expensive debt. The debt and credit markets are interesting areas for the sector, and that will persist through the coming year, as long as financing and liquidity remains an issue.

How is private capital continuing to shape the sector?

Family offices and their involvement in the private equity market is one of the most interesting dynamics at the moment and have the potential to play a critically important and increasingly influential role. As they continue to ‘professionalise’ their approaches and gain more understanding of the private equity and alternatives market, they can provide some much-needed capital injection, often in more ‘non-traditional’ areas of the private equity space.

This is a welcome trend for the Channel Islands in particular, which have both developed world-leading private wealth and private equity capabilities, expertise and regulatory frameworks. By cross-selling across these disciplines, they can play a critical role in providing the sorts of platforms family offices want, to put that private capital to work.

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