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Weekend Analysis

What’s in store for fundraising in 2024? Here are three predictions.

PitchBook analysts weigh in with predictions for what’s in store for fundraising in 2024.

Private investment managers may be raising champagne glasses to better days ahead, but poor fund distributions and interest rates are likely to spoil the party.

The downtrodden exit environment has hit PE and VC investors alike with some of the lowest returns in years. Less cash leaving old funds means LPs are strapped for new commitments.

Meanwhile, those LPs are being lured by less risky bets. Higher yields on bonds and cash continue to make it easier to hit institutional investor return targets—typically 7%-9%—with fewer alternative assets.

Our analysts have a few predictions for what’s in store for fundraising in 2024.

This article appeared as part of The Weekend Pitch newsletter. Subscribe to the newsletter here.


Let’s dive in. Here are three fundraising predictions from PitchBook analysts for the year ahead.

US PE continuation funds will hit ‘critical mass’

US PE exit activity fell to an unprecedented low this year, with about 7.6% of assets under management turning over.

The industry has responded creatively with a range of solutions: net asset value financing, PIK loans and secondary sales of all stripes, among others.

But no tool has attracted as much enthusiasm as the continuation fund. These vehicles are used to buy assets from older funds that have reached the end of their life. LPs often have the option to sell their interest or roll it over into the new fund.

Continuation funds still constitute a small share of overall exits. That will change in 2024, PitchBook lead PE analyst Tim Clarke argues.

“Continuation funds and the funds backing them have achieved critical mass, and with the pressure for liquidity building, we believe 2024 to be the breakout year with upwards of 100 exit transactions involving continuation funds as buyers,” Clarke writes in our 2024 US Private Equity Outlook.

 


Continuation funds aren’t a cure-all. They are frequently controversial, and LPs can be resistant to these vehicles. Moreover, the process of creating them can be laborious and long—all hurdles to widespread adoption.

Instead, many PE firms are likely to continue waiting out this period of low exits. PitchBook analyst Jinny Choi expects holding periods of US PE-backed companies to hit a new record in 2024. The current median holding period is 6.4 years, the highest in more than a decade.

US VC fundraising won’t increase by much. Blame IPOs.

Arm, Instacart and Klaviyo made valiant attempts to open the IPO market in 2023, but it remained largely shuttered.

As a result, US VC fund distributions dropped to a decade-low in Q3. VCs returned $54.8 billion to their investors from 900 exits through mid-November. That was about 30% less than in 2022, itself a down year.

LPs were thus starved for liquidity, and dollars didn’t recirculate into new VC funds in 2023. The new year should bring a slight increase in total fundraising, on par with 2020 figures, according to PitchBook quantitative research analyst Susan Hu, whose model estimates the impact of recent distributions on future fundraising efforts.

 


Startups won’t feel much relief, however.

“Another year of sluggish fundraising will continue to put downward pressure on capital-starved startups as VC firms adjust their capital deployment pace to be more selective in a turbulent market,” Hu writes in our 2024 US Venture Capital Outlook. New investments will likely outpace fundraising, draining the dry powder that has sustained the industry during the dry spell.

In Europe, large funds will reign supreme

PE fundraising in Europe was on track for a record year as of the end of November, with more than €110 billion ($120.9 billion) raised despite the lowest fund count in a decade.

Supersized PE funds are responsible for the apparent contradiction. Over 44% of capital went to just three funds: CVC Capital Partners Fund IX at €26 billion, Permira Fund VIII at €16.7 billion and KKR European Fund VI at €7.5 billion.

PitchBook analyst Nicolas Moura expects record concentration in 2024 as overall fundraising drops. The three largest funds are expected to close €45 billion based on current targets, Moura predicts in our 2024 European Private Capital Outlook.

 


A similar story is expected to play out for VC. PitchBook analyst Navina Rajan thinks that VC fundraising will match or surpass 2023 levels on the back of large funds. The 10 largest European VC funds raised €6.6 billion in 2023, or 39.2% of the total capital raised for the strategy.

Rather than fleeing the asset class, LPs may see the dip in startup valuations as a bargain buying opportunity, Rajan said.

Featured image by Drew Sanders/PitchBook News

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