Global private markets exhibited a mixed performance in 2024, characterized by tepid dealmaking and fundraising declines, according to McKinsey’s latest report. Despite these challenges, capital deployment increased across asset classes as managers adapted to higher interest rates. Investor confidence remained strong, with leading limited partners (LPs) indicating plans to increase capital allocations to private markets in the coming year. The report highlights the resilience of private market stakeholders navigating a period of transition marked by geopolitical instability, evolving trade policies, and rapid technological advancements, particularly in generative AI.
The McKinsey report emphasizes that conditions are expected to remain uneven for private markets. Geopolitical instability and changes in trade policy are identified as key challenges for managers and investors. Simultaneously, technological innovation, especially the rise of generative AI, is pushing private market leaders to develop new capabilities to unlock additional value. These factors contribute to a complex landscape requiring adaptability and strategic foresight from market participants.
Private equity (PE) experienced a nuanced year in 2024. Fundraising for traditional commingled vehicles declined for the third consecutive year, and investment returns were modest compared to public markets. However, the report reveals positive developments, including a long-awaited increase in distributions to LPs, exceeding capital contributions for the first time since 2015. Dealmaking also rebounded, with a notable rise in large PE deals. A more favorable financing environment, characterized by declining buyout financing costs and increased new-issue loan value, contributed to this resurgence.
The PE industry faced significant headwinds from 2022 to 2023 due to rapid interest rate increases, persistent inflation, and heightened geopolitical uncertainty. These challenges led to a slump in dealmaking and disruptions in portfolio companies. Despite these obstacles, PE is demonstrating resilience, with 30% of LPs planning to increase their PE allocations in the next 12 months. The asset class’s long-term performance, outpacing the S&P 500 since the turn of the millennium, continues to attract investors seeking diversification.
General partners (GPs) are adapting to evolving market dynamics by exploring alternative capital sources, such as separately managed accounts and co-investments. They are also increasingly targeting noninstitutional investors, including high-net-worth individuals, through various channels and vehicles. To meet growing liquidity demands from LPs, GPs are creating new fund structures, such as continuation vehicles, and expanding their use of deal structures like public-to-private transactions. Scale continues to provide a competitive advantage, with the top 100 GPs making significantly more acquisitions of competing GPs than in previous years.
Despite the overall positive outlook, certain pockets of the industry faced challenges. Venture capital experienced a larger decline in deal count and lower growth in deal value. Asia lagged behind North America and Europe in fundraising, performance, and deal activity. The PE industry must also address the exit backlog of sponsor-owned companies and navigate increasing geopolitical uncertainty and the rapid evolution of AI. Building robust data science teams, developing AI-enabled value creation initiatives, and scaling external AI partnerships are crucial for success.
The real estate industry showed signs of recovery in 2024, with global deal value increasing for the first time in three years. This rebound was driven by rate cuts, capitalization rate compression, and reduced supply in certain sectors. However, fundraising challenges persisted, with global closed-end fundraising declining to its lowest annual total since 2012. Returns for closed-end real estate funds remained negative, and open-end funds also experienced pressure. GPs with operational capabilities and expertise are gaining market share from capital allocators, reflecting the importance of active management in the current environment.
Private debt demonstrated resilience in 2024, with increased new-issue financing for leveraged buyouts in Europe and the United States. Although global private debt fundraising decreased, the rate of decline was lower compared to other private market asset classes. Investor interest in private debt remains strong, driven by the security derived from its position in the capital structure. New opportunities are emerging for managers, with a significant amount of high-yield bonds and leveraged loans set to mature in the coming years. Managers should focus on disciplined underwriting, building capabilities in new asset classes, and tapping alternative capital sources.
The infrastructure sector experienced a mixed year in 2024. Fundraising declined to its lowest amount in a decade, but capital deployment accelerated, and deal value increased significantly. Infrastructure appears to be the asset class in which the greatest number of investors want to increase allocations. This bullish view is supported by global trade growth, the energy transition, and demographic shifts. Infrastructure managers are adapting by investing at the intersection of different themes and focusing on active ownership to drive returns.
