Private Equity in 2025 – What will the future reserve?

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📈 The Evolution of Private Equity

In the aftermath of the global financial crisis, private equity gradually returned to form, moving forward as financial markets stabilized. Between 2014 and 2019, the industry saw a steady, if measured, increase in deal activity. Robust fundraising helped amass significant “dry powder”, yet investment decisions were often tempered by shared investor caution, closer regulatory oversight, and persistent anxiety over inflated valuations. The result was an environment of careful growth rather than big leaps forward.

In 2020, the trajectory shifted dramatically. The onset of the COVID-19 pandemic briefly halted transactions as firms grappled with lockdowns, supply chain disruptions, and economic uncertainty. But this pause didn’t last long. By late 2020, private equity deal-making had rebounded, propelled by low interest rates, extensive stimulus efforts, and new comfort with remote due diligence. This renewed appetite for growth-oriented investments set the stage for an unprecedented surge in deal activity.

2021 was a record-breaking year for PE deals with the total deal value surging to a staggering $2.3 trillion of deal volume across approximately 21,000 deals.

So, what sparked this explosion? A few factors stand out:

• Pent-up Demand: Transactions put on hold during the initial stages of the pandemic — when due diligence processes were disrupted, and economic forecasts were uncertain — resurfaced by late 2020 and spilled over into 2021. This backlog of deals, combined with renewed investor confidence, led to a rapid uptick in closed transactions.

• Abundant, Low-Cost Capital: With central banks maintaining historically low interest rates and governments deploying extensive stimulus measures, borrowing costs for PE funds plummeted. The availability of inexpensive debt financing, along with an influx of private capital raised during the pre-pandemic years, propelled leveraged buyouts and expansion deals to new heights.

• Sectoral Shifts and Digital Acceleration: As companies adapted to a more digital world, tech, healthcare, and e-commerce ventures became prime targets. These high-growth sectors offered private equity sponsors opportunities to deploy capital in businesses poised to benefit from long-term shifts in consumer and enterprise behaviors.

Although deal activity remained elevated in 2022 and 2023, rising interest rates and geopolitical tensions introduced new challenges. The industry adjusted, focusing more on strategic consolidations, smaller add-ons, and resilient sectors rather than aggressive expansions.

🔍 Looking into 2025

If we had a crystal ball, here are some of the questions we’d be pondering:

1. When Will Interest Rates Stabilize?
Interest rates influence borrowing costs, pricing, and overall returns. If central banks remain hawkish, expect tighter leverage, longer holding periods, and more selective deal-making.

2. Will LPs Maintain Their Allocations to PE?
LPs must balance liquidity needs and portfolio composition (the “denominator effect”). A pullback could slow fundraising, pressuring GPs to trim fund sizes or adopt niche strategies like continuation vehicles.

3. How Will Firms Put Their Record Dry Powder to Work?
With over $2.6 trillion in unallocated capital, GPs must find new ways to deploy funds efficiently and creatively. Will we see a surge in minority investments, collaborative club deals, or more nuanced financing structures like continuation funds and preferred equity?

4. Which Exit Paths Will Reopen?
After a lengthy drought, the IPO window is showing tentative signs of life. Will 2025 see a meaningful surge in listings, or will GP-led secondaries and continuation funds remain the dominant exit routes?

5. Where Will the Next Wave of Capital Flow?
As market conditions evolve, sector preferences may shift dramatically. Will technology and healthcare retain their dominance, or could climate solutions, infrastructure upgrades, and specialized manufacturing gain traction?

These questions will shape how deals get done, influencing investor confidence, returns, and power dynamics among GPs, LPs and lenders.

🎯 Trends to Keep an Eye On

Before we finish up, let’s take a look at a few trends guiding the industry forward. These points offer a quick snapshot of what to watch as we head into 2025:

1. Deal Activity Ramps Up
After a long slowdown, 2024 saw a rise in capital deployment. Overall values grew by 36% in H1-24, while in Q3-24, the U.S. leveraged loan issuance reached $144.7bn, up from $102.9bn in Q3-23. This resurgence is attributed to a narrowing gap between seller expectations and buyer valuations.

2. Idle Commitments Raise Urgency
High levels of uncommitted capital are creating pressure, with more than a quarter thought to be locked in older funds. Time constraints intensify the push to commit these reserves. In 2025, managers may focus on corporate divisions, roll-ups and distressed opportunities. This situation could shorten negotiation timeframes and lead to stronger competitive pressure.

3. Continuation Vehicles Gain Ground
With public listings and mergers still limited, continuation funds offer a middle path, enabling firms to retain valuable holdings while giving investors liquidity — without resorting to a traditional sale. Continuation fund activity soared 80% in 2024, and this trend is set to continue into 2025.

4. IPOs Might Return as a Credible Route
IPO activity gained momentum in 2024, with sponsor-backed IPOs raising over $8 billion — a sharp increase from prior years. With a growing backlog of potential IPO candidates, 2025 is expected to bring heightened activity as firms seek to capitalize on favorable market conditions.

5. Technology Remains Prominent
Technology continues to dominate private equity deal activity. In the third quarter of 2024, private equity firms invested $52 billion in the TMT sector. As new AI-driven tools mature, further investment in software and analytics is likely. This category stays attractive for growth-oriented capital.

6. Rise of Retail in Private Markets
More platforms enable individuals to direct a portion of their holdings toward private markets (e.g. BlackRock). Even modest allocations from this segment could introduce substantial capital into the industry, potentially influencing asset valuations, enhancing market scrutiny, and prompting the development of new liquidity solutions

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I hope this gave you a clear view of what is happening in the private equity sector and what we can expect in the new year. As usual, feel free to reach out with any questions or share your own insights — it’s always good to hear your experiences!

Until next time,
PE Bro

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Disclaimer: The views and opinions expressed in this article are solely my own and are provided for informational purposes only. This content is not intended to be financial advice. The examples and figures mentioned may vary and may not account for all possible scenarios or regional differences. Always seek the guidance of a qualified financial advisor or professional before making any investment decisions.