Private equity fundraising declined in Q3, but shows signs of stabilizing, says Preqin

Global private equity fundraising decreased in the third quarter of 2024 from the previous quarter, according to the latest quarterly update report from Preqin issued on Oct. 31.

The numbers of new funds dropped by 24% to 189 from the second quarter to the third quarter, similar to a 22% fall in aggregate capital raised (to $135 billion).

But Preqin indicated these declines were not surprising given earlier predictions this year that private equity fundraising would remain stagnant in 2024, “only picking up in a couple of years as the interest-rate environment stabilizes.”

Preqin also said it anticipated that in 2024 North American fundraising (which accounts for about two-thirds of capital raised globally) would be impacted by the large number of investors who turned away from private North American equities in 2023, due to the reduced returns expectations, and invested in public equities instead.

In a more challenging fundraising environment, Preqin noted in the report, managers must market their funds for longer before closing. Indeed, this year through the end of the third quarter, 50% of new funds that closed needed more than two years to raise money from investors compared with the period 2018–2023.

Moreover, secondaries funds accounted for 11% of aggregate capital targeted by the third quarter, but well below buyout (47%) and growth (27%) strategies.

“This is largely down to investors, concerned about the exit environment, considering new outlets for their capital.,” Preqin said in the report. Secondaries funds are relatively large in size, only accounting for 4% by number of funds, the report noted.

Exits edge up

The number of exits edged up slightly in the third quarter to 570 from 550 in the second quarter, but the total value of exits was stagnant: $96 billion in the third quarter compared with $97 billion in the second quarter.

Fund managers, Preqin explained in the report, are typically reluctant to exit at valuations they consider too low and the exit data for the third quarter suggested a potential shift.

Trade sales, or sales of companies in the same sector, are traditionally the strongest exit route. Those climbed by 11% to 300 in the second quarter. Meanwhile secondary buyouts, the second most common exit type, edged up to 205 from 197 in the quarter; sales to management exits more than doubled, from five to 11.

But bankruptcy and restructuring exits declined, down from 28 exits in the second quarter to only five in the third quarter, a “potential sign of both the economic situation improving and GP and investor confidence returning,” Preqin said.

IPO exits totaled 49 in the third quarter, up from the 2023 average of 39, but still lagged the five-year rolling average of 62.

Aggregate deal value declined by 9% from the second quarter to $139 billion, and was also down by 13% from the five-year rolling average of $160 billion. Nonetheless, that $139 billion figure from the third quarter was 48% higher than the $94 billion reported in the same quarter last year.

Preqin also predicted that the 50-basis point rate cut enacted by the Federal Reserve in mid-September “will have a positive impact on private equity valuations, including those on the exit side” and “this should increase the number of deals and exits going forward, particularly if further rate cuts from the Fed come this year and next.”

Overall, data from the third quarter showed that “we are in a more challenging fundraising environment, but deals and exits are showing stability,” Preqin commented in the update.