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Private Equity

What PitchBook analysts predict for PE for 2024

Will private equity dealmaking remain constrained by the higher-for-longer interest rate environment? Will fundraisers tread a rocky path or find smoother ground? As 2024 gets fully underway, here are some predictions from PitchBook analysts on how the private equity market may behave this year.

Will private equity deal-making remain constrained by still-high interest rates? Will fundraisers tread a rocky path or find smoother ground?

As 2024 gets fully underway, here are some predictions from PitchBook analysts on how the private equity market will develop this year.

An abundance of continuation funds

Continuation funds will continue to flourish this year, driven by GPs’ growing need for liquidity.

PE firms have increasingly turned to non-traditional options for liquidity over the last two years as they faced an exit drought.

A financing tool that has become increasingly popular is the continuation vehicle, a type of secondary transaction that allows PE firms to recapitalize old funds and lock in unrealized gains on assets. Over the first 11 months of 2023, PE firms completed 71 exit deals structured through continuation funds, PitchBook data shows.

This year will likely see the tally of continuation vehicles surpass 100, given that GPs face a growing pressure to return capital to their investors, PitchBook analysts predict.

The massive amount of capital amassed by funds targeting PE secondary transactions will also fuel the popularity of continuation funds, as these funds seek opportunities to deploy their dry powder, analysts write in PitchBook’s 2024 US Private Equity Outlook.


Extended hold times

PE funds will likely hold onto their investments longer, owing to the misalignment between a massive volume of transactions closed in recent years and an historically low exit rate, leading to a growing backlog of PE assets.

The median time of how long a portfolio company has been in a PE fund is expected to reach 4.4 years by the end of this year, an all-time high, analysts predict. As of the end of Q3 2023, US PE funds held their existing assets for a median period of 4.2 years, the highest since 2012, PitchBook data shows.

PE funds divested even their well-performing assets at a slower pace last year. Of PE-backed companies that were sold in 2023, the median holding period before exit was 6.4 years, PitchBook data shows. It was the first time this figure topped the six-year reading since 2015.


Fundraising conundrum

Analysts expect 2024 to be a year of lean fundraising for buyout shops as their path to capital formation will likely get mired in the slowing pace of distributions—a product of the sluggish exit environment.

The exit of a private equity investment plays a critical role in a buyout fund’s capital formation chain. Without a rebound in opportunities to sell or float their investments, it’s unlikely that other activities—from fundraising to deal-making—will recover.

“Everything comes back to the exit velocity,” said Tim Clarke, PitchBook’s lead PE analyst.

The total value of PE-backed exits dropped by 26.6% year-over-year to $574.2 billion, the lowest since 2012, according to PitchBook’s 2023 Annual Global PE First Look.


All of this means PE funds are returning less capital to their LPs, and the dearth of distributions could decelerate buyout fundraising in the year ahead to its slowest pace since 2019, PitchBook analysts estimate.

Throughout last year, PE firms raised $556.1 billion globally across 593 vehicles, the lowest fund count since 2012, the preliminary data compiled by PitchBook shows.

If the IPO market reopens, M&A activity rebounds and secondary volume continues to grow, then buyout firms will start to see money flow back, Clarke said.

Featured image by Erhui1979/Getty Images

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