In 2024, valuations in private markets stabilised, and deal volumes picked up somewhat, making this year slightly better for private investors compared to 2023. However, it was far from spectacular, experts told Investment Officer in a retrospective. There remains a mismatch between what sellers expect for their stakes and what buyers are willing to pay—a lingering effect of significantly higher interest rates.
‘Interest rates have not been favourable,’ said Paul van Hastenberg, partner at multi-family office Clavis. ‘Particularly in the US, rates are falling more slowly than the market had hoped. We expected a turnaround in 2024 for private markets, where distributions and deals would gain momentum, but that has not materialised.’
Buyers and sellers are, however, starting to align more frequently, improving the exit market slightly. Van Hastenberg explained: ‘Sellers are gradually getting used to a new kind of normal, where prices are simply lower than they were a few years ago.’
‘It takes time for both sides to meet again at a new level,’ said Hylke Hertoghs, managing partner at Marktlink Capital, which offers investors access to private equity from 250,000 euro via feeder funds and fund-of-funds structures.
According to Koen Ronda, head of private markets at IBS, the exit market was hampered by higher interest rates, inflation that had yet to subside, and uncertainty around the US presidential elections. ‘The weak exit market was therefore not necessarily linked to company performance.’
The experts do not expect a proportional recovery for exit markets. They believe the climate for IPOs will remain challenging. Van Hastenberg anticipates financial buyers will take the lead: ‘Many parties will need to return capital to investors at some point next year. Whether this will result in the best deals is uncertain, but it will certainly lead to more deals.’
Because fewer distributions occurred, investors had less capital available to reinvest. This led to slow fundraising and increased demand for liquidity. ‘Investors want to see cash returned first,’ said Hertoghs. ‘The pressure is mounting not only to show that stakes in portfolios are valued highly on paper but also to realise that value.’
Melting wedding cake
According to Hertoghs, the strong focus on liquidity has spurred innovations that give a ‘new twist’ to investing in private markets. He highlights the rise of continuation funds, which allow fund managers to manage companies for longer. ‘As an investor, you must ask yourself whether the stake is being held longer because there is significant room for further growth or because it simply cannot be sold.’
Experts also observe that some parties are taking out loans using their portfolios as collateral to distribute capital to participants earlier. ‘We steer well clear of such debt-on-debt structures,’ said Ronda. ‘We consider this a potentially melting wedding cake. It has the potential to go significantly wrong at some point.’
The funds that performed well last year were those able to make distributions to investors thanks to high-quality portfolio companies. ‘Such funds still raise capital relatively easily,’ said Hertoghs.
Particularly companies with strong cash flows, stable growth figures, and active in sectors such as software and healthcare remain highly sought after and achieve high valuations, according to the experts. Companies focused on the energy transition also performed well, while the retail sector struggled considerably. Van Hastenberg added: ‘Well-managed companies sell in all markets. That was true last year, and it will remain true in 2025.’
Deals involving companies that required significant work often fell through in 2024, noted Hertoghs.
Ronda added: ‘The days of entering a company and achieving a good return simply because the broader market grew seem to be over. It is time for private equity managers to create hands-on value. Private investors must do their homework to assess how private equity managers are creating value.’
Democratisation of private equity
In 2024, there was much discussion about the democratisation of private equity. Over the past two years, several players in the Netherlands, such as Altix and Capler, have begun offering private equity investments to retail investors. This lowers the barrier to investing in private markets, although private equity remains less popular in some European countries.
In Scandinavian, British, and Dutch markets, significant capital is still being raised, and returns have been solid, observes Hertoghs. In Germany and France, the outlook is somewhat less positive, which he attributes partly to private equity’s image in those countries. ‘In the Netherlands, private equity interest is often seen as a mark of approval for a company. In Germany, many family businesses prefer succession within the family. This is also why Germany is viewed by private investors as the promised land, as it is home to many attractive mid-sized companies.’
Clavis expects democratisation to continue. ‘There is a significant revenue model here for financial institutions as they see their target audience expand.’
The experts, however, warn of the potential dangers of democratisation. Platforms must ensure clients do not allocate too much of their wealth to private markets.
‘You don’t want clients to be forced to sell listed assets to meet capital calls,’ said Ronda. ‘We are seeing some “cowboy behaviour” in offering private investments to retail investors,’ referring to platforms that take their fiduciary duty less seriously. ‘Clubs operating under a light licence can get away with a lot due to more lenient regulations. Ultimately, I hope any problems with such parties do not taint the democratisation process with a negative connotation.’
Van Hastenberg acknowledges there is some tension surrounding the topic. ‘There are options for individuals to invest with just a few thousand euros, but these retail investors often want the option to exit as well. Providers are therefore exploring ways to keep parts of the portfolio liquid, for example, through money market funds or shares, but this comes at the expense of the fund itself. If everyone carefully weighs the pros and cons, private equity can work for smaller investors.’
This article is the first part of a two-part series on private markets. In this first part, we look back; in part two, we discuss expectations for 2025.