- This article analyzes the outlook for private equity in 2024 in the current macroeconomic context, characterized by high inflation and interest rates that will remain elevated following a 2023 filled with uncertainty.
- It is primarily aimed at financial professionals, investment managers, and individuals interested in the private equity sector.
- For managers, it is interesting to diversify by including private equity assets that are not correlated with financial markets in their portfolio. One way to reach a larger number of potential clients is through the securitization of the private equity fund, a process carried out by FlexFunds through ETPs. Contact us for more information!
The biggest difficulty of 2023 was navigating uncertain times, where the extent to which interest rates would rise and their impact on the economy and companies was unknown.
The main challenge was to assess the effect of one of the most intense periods of interest rate hikes in recent history in a context of geopolitical tensions, the risk of recession in some economies, and a lack of clarity in the markets.
2024 seems to be clearer. This year, many expect a greater relaxation after a halt in corporate operations in 2023 due to high uncertainty.
Although some doubts persist, it is important to highlight the clear announcement about the increase in interest rates and the entry into a prolonged era of positive and stable rates. This marks a return to the cost of capital after a period of artificially low rates and high liquidity in the system.
It is also known that growth will be characterized by increasingly widespread sluggishness, with modest yet positive rates in the major developed countries.
The IMF has announced a global growth forecast of 2.9% in a variable environment. The United States’ GDP will increase by 1.5%, and the Eurozone’s will increase by 1.2%.
In this macroeconomic environment, with some inflation and elevated interest rates, private equity funds anticipate a positive year and point out the main opportunities in the market: private credit and leading sectors.
Private credit markets are increasingly present and mature, with numerous investment options not only in emerging companies but also in established firms with stable cash flows.
If you are considering enhancing the distribution of your private equity fund, securitization can be a tool that allows you to expand the investor base. FlexFunds’ solutions allow repackaging this type of instrument in less than half the time and cost of any other market alternative.
Private Credit Emerges Strongly in 2024
Despite the risk of economic cooling, stable interest rates and reduced inflation leave an encouraging outlook for investment. In fact, certain increases in operations are already being seen.
In the case of investment in private markets, the exit from the zero-interest rate environment has already fueled growth, and the tightening of bank financing also encourages private debt.
In this context, private credit could be a more attractive option. It is highly profitable, has floating structures, and is not subject to public markets.
Additionally, one must consider a recent trend: companies delay their IPOs and prefer to remain private for longer periods.
This is a factor leveraged by private equity funds, which present themselves as a very attractive alternative, both for financing companies and for investment for those who want to diversify their portfolio.
In fact, it is in the manager’s interest to decouple some assets within their portfolio from the fluctuations of financial markets through entry into private equity funds that provide access to investments parallel to traditional assets with potential profitability.
For all these reasons, credit in non-public markets is one of the most promising options for private equity funds this year.
Artificial Intelligence, Cybersecurity, Decarbonization
2024 presents itself as more stable than 2023, but there are certain risks that we must consider. Among them are poor growth and the possibility of geopolitical crises erupting at inopportune moments and under complicated circumstances for certain markets.
Therefore, this year’s outlook for private equity funds is aligned with investing in future sectors with very high growth potential, such as artificial intelligence or cybersecurity.
It is expected that in 2024, private capital markets will continue to evolve upwards, and private funds will continue to lean towards Private Equity, Venture Capital, or Real Estate.
One of the most effective options for reaching a larger number of potential clients is to securitize the private equity fund, a process carried out by FlexFunds that will turn it into a listed product on the stock exchange (ETP).
If you have any questions or wish to delve deeper into this, you can contact one of our financial experts to make your inquiry.
