Investors and fund managers grow more optimistic toward private equity (PE) from 2025, according to a new report by London-based investment data company Preqin. Half of surveyed investors aim to increase their investment in private equity in 2025, compared with 28% the year before, although exits and asset valuations are still a concern.
After two challenging years for private equity in 2022 and 2023, driven by the steepest interest rate hikes in two decades, 2024 brought relief with the start of a monetary-loosening cycle. Additionally, the global recessionary risks that concerned the market in 2024 did not materialize to date, with the industry appearing to be better positioned for 2025.
Global PE raised $482bn with 646 funds by Q3 2024. This fundraising was strengthened by increased interest from certain types of investors, especially non-institutional ones. Recent fund search data from Preqin shows that non-institutional investors, including family offices and wealth managers, are increasingly attracted to private equity funds, alongside insurance companies and asset managers.
There is a record number of funds in the market, with 4,835 funds raising capital, targeting $1tn by Q3 2024. Of this, the number of funds increased by 17% during this period, but with a 14% decline in aggregate targeted capital. This trend indicates a shift toward smaller average fund size targets.
Providing fundraising picks up in the fourth quarter, Preqin analysts believe it is likely to remain flat on 2023 aggregate. They forecast private equity fundraising would remain stagnant in 2024 and pick up when the interest rate environment stabilizes.
Private equity deal-making had a subdued year, with exit activity contracting sharply due to lower valuations from higher discount rates and negatively impacting the overall deals market. Even so, deal-making could still match or exceed the levels achieved in 2023. By Q3 2024, private equity deal-making reached 69% and 74% of 2023 volume and value, respectively. However, Preqin current estimates indicate that private equity deal volume declined gradually and may be normalizing at around the five-year average.
“When we look at 2024 in review, we see that investors and private equity managers alike appear more optimistic as we head into 2025. However, fund managers are wary of regulatory and geopolitical risks, remaining concerned about asset valuations. The long-term demand for higher and uncorrelated returns compared to public markets should give the industry a head start” Victoria Chernykh, Associate Vice President, Research Insights, at Preqin said.
Additional key findings from the Preqin Global Report 2025 Private Equity include:
Exits: Fund managers were more successful with smaller exits in 2024 than was the case in 2023. This is because these smaller exits are typically easier to execute than larger ones, especially against a challenging valuations and deal activity environment. By Q3 2024, total exits reached 80% of the 2023 total, but only 54% of the 2023 aggregate value. Larger deals and exits rely more on multiple expansion, which was difficult amid the rate-hiking cycle and elevated interest rates of 2022–2023.
Investor sentiment: Interest rate cuts and the prospect of more to come boosted private equity investor sentiment for 2025. According to the latest Preqin investor survey, key investor concerns broadly subsided this year. Compared with the 2023 edition of the investor survey, the proportion of respondents viewing inflation and interest rates as the main challenges dropped from 27% to 7% and from 58% to 36%, respectively.
Strategy-level: Small- and mid-market buyout strategies took over the lead in investors’ preference from secondaries, when looking to investment strategies for the next 12-month period, according to Preqin’s Future of Alternatives 2029 report.
