Standout topics were the liquidity squeeze and the growing influence of private wealth in private equity.
The buzz surrounding the future of private equity was palpable at the Loyens & Loeff Funds-PE Event 2024, held on October 3-4 at the Brussels office of Loyens & Loeff.
This gathering brought together industry leaders and experts for a deep dive into the shifting landscape of private equity (PE). Hosted by prominent law firm Loyens & Loeff, the event tackled the pressing challenges and emerging trends in the PE space, offering key insights into what lies ahead.
A challenging market landscape
Marc Meyers, partner at Loyens & Loeff and based in the Luxembourg office, opened the discussions. He highlighted the challenges facing the private equity sector in a market that has transformed significantly over recent years. Meyers, joined by his Dutch counterpart Herman Kaemingk, dissected these shifts, particularly focusing on the M&A market and liquidity challenges.
Impact of M&A deal activity
One of the most pressing issues discussed was the decline in M&A deal activity, which has led to fewer exits. This has reduced the cash flowing back to sponsors, in turn slowing down fundraising for new investments. Meyers noted a marked drop in deal volume, though values have slightly improved. With interest rates starting to ease, there are signs of a gradual recovery. However, Meyers and Kaemingk cautioned that a swift return to the exceptionally high activity of 2021 is unlikely.
Liquidity challenges: key trends
As fundraising remains challenging, Meyers and Kaemingk explored emerging key trends in response thereto. Many funds are extending their fundraising periods by up to a year, which Meyers described as part of a ‘new normal’ that is still evolving. The industry is adjusting to slower deal cycles and taking a longer-term view on investments.
Another notable shift is the rise of secondaries and continuation funds. As Meyers pointed out, valuations are currently low, making it a poor time to exit companies. To address this, limited partners (LPs) who want out are increasingly opting for LP-led secondaries—selling their stakes to other investors. Additionally, GP-led secondaries, single-asset continuation funds, co-investments, and private credit are gaining prominence.
NAV facilities, once relatively uncommon in the sector, are also on the rise. This financing solution allows funds to secure a loan against the net asset value of their portfolio companies, providing additional liquidity options to the GPs, though it has raised concerns over the growing use of ‘layered leverage’ in the industry.
The rise of private wealth in private equity
A standout topic was the growing role of private wealth in private equity. “The retail category is growing at a great pace”, said Meyers. “The wealth managed by family offices has grown significantly over the past five years and is expected to continue. Many fund initiators are now tapping into the U.S. retail investor market, which has matured in terms of legal structure and compliance.”
Kaemingk asked if this ‘democratization of private equity’ could raise concerns. Meyers responded that retail investors typically operate through intermediaries like banks and investment platforms, which poses additional risks. Regulators have noted that retail investors may lack a deep understanding of financial markets and the risks involved. As this sector grows, regulatory scrutiny will likely intensify, making compliance a critical issue for PE firms.
Healthcare and accountancy
In the second part of the market update, Kaemingk highlighted trends in healthcare and accountancy. He noted that in the Netherlands, private equity in healthcare is a significant topic. “Our colleague Anke is focused on this topic and recently wrote an interesting article”, he added.
Another area drawing attention is accountancy. While no Big Four firm has yet been acquired by a large investor like Blackrock, there has been an increase in accountancy deals. Kaemingk explained that PE firms are attracted to the recurring cash flow of accountancy firms. Governments and regulators are watching closely to ensure the public interest is safeguarded.
Expensive veterinary bills
The pet care sector is also drawing attention, with rising veterinary and pet food costs gaining public interest. As a pet owner, Kaemingk joked about blaming PE for his high vet bills. He pointed out that, while these acquisitions are often low in value, they can gradually lead to market control, drawing regulatory scrutiny.
Looking ahead: cautious optimism
As the update concluded, there was a sense of cautious optimism about private equity’s future. Meyers and Kaemingk anticipate a slow recovery, with more growth in certain areas like private wealth and ESG funds. One thing is certain: private equity is here to stay, and its ongoing evolution will shape the business landscape in the years to come. For PE firms, investors and legal professionals, adapting to an ever-changing environment will be crucial.
Private Equity Summit 2024 - Buy & Build
Join us on December 11 at Private Equity Summit 2024 - Buy & Build. The M&A Community Belgium has joined forces with Loyens & Loeff to organise a unique Private Equity event. Private Equity Summit 2024 brings together top experts in Private Equity and Venture Capital, reflecting on past developments and looking ahead to the hottest topics.
Get more information and register here.
