Exit activity up as dealmakers turn increasingly bullish in 2025, predicts Moonfare
As 2024 comes to a close, analysts from private equity investing platform Moonfare have outlined 10 key trends in private equity to look out for next year.
1. Exit activity should pick up as financing conditions ease
"The financial system is enjoying a bout of easy money, which in turn should help financial stocks and activity in private equity. It may also help to prepare the ground for the return of IPOs in 2025", commented Moonfare chief economist Mike O'Sullivan.
2. Dealmakers are expected to turn increasingly bullish
There has already been a noted increase in deal flow in the second half of 2024, particularly among mid-market managers, though there is some way to go to equal 2021. The Trump presidency could also boost private equity activity as deal-making flourishes and the regulatory environment eases.
3. Semi-liquids will continue their rise
Demand for and issuance of semi-liquid funds will continue to rise in 2025, driven by individual investors' need for structures that are more tailored to them.
4. Private equity valuations could rise to reflect more benign economic conditions
Valuations will likely see a boost in 2025 if public markets continue to rise and economic fundamentals remain benign. There is already evidence of higher entry multiples, especially in the US.
5. Private credit opportunities will likely move towards more bespoke financing
Private credit opportunities will continue to grow and offerings will become increasingly bespoke as low-rate debt matures. The need for borrowers to manage their balance sheets creatively should create opportunities for private credit funds to provide tailored funding, said Moonfare.
6. Secondaries set to continue their expansion as tools for managing liquidity and portfolios
2025 will be another busy year for secondary investments after a likely record-breaking 2024. Fund raising and capital deployment will remain high, and GP-led and LP-led transaction volume will continue to grow.
7. Venture capital to continue to prioritise profitability
Venture capital will likely be on a sounder footing for 2025, though lower deal volumes may continue for some time. Exits may pick up later in 2025, said Moonfare, thanks to generally rising valuations. Notable is the rise of venture debt, which is attracting both higher-growth companies and venture-growth players seeking additional financing without risking their valuations in an equity fundraising round.
8. Technology and climate-led transformation will power industrials and business services deals
As stable businesses with predictable revenue streams and high cash generation, industrials and business services are likely to be among the stand-out sectors for AI deal activity over the coming year amid a likely pickup in deal volumes. Technology and climate-led transformation will power deals in both sectors.
9. Macro issues will stay in the spotlight
Macro issues will continue to pre-occupy private equity firms. Almost two thirds of GPs and LPs surveyed in a 2024 Goldman Sachs Asset Management report said geopolitical risk was the biggest investment risk they faced, up from 46 percent in 2023. Other potential risks include higher rates for longer, a potential drag on GDP growth if the US implements protectionist policies, and a narrowing IPO window that may provide limited alternative exit routes for the biggest deals.
10. Focus on operational change will remain the key to success
As a result of remaining macro challenges and global uncertainties, firms will need to hone their value-creation playbook. Operational improvement, which Moonfare has long emphasised as a key determinant of GP success, will be particularly important in 2025. GPs are hiring operators with experience, for example, in supply chain management or technology integration, and those with sector expertise.
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