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Where is the private equity fund lifecycle sweetspot?

27 Mar 2024

Where is the private equity fund lifecycle sweetspot?

Due to market conditions, General Partners (GPs) are facing different pressures and opportunities depending on where they are in the fund's lifecycle. Investec's Jonathan Harvey explores each of the stages and the impact that it is having on the fundraising landscape. 

Our 2024 Private Equity Trends report reveals that GPs are under pressure at the start of the fund lifecycle with macroeconomic factors contributing to slower fundraising. Likewise, funds at the end of the investment period are suffering from a slowdown in exits. However, funds that are halfway through their life cycle are in the sweet spot and well-positioned to capitalise on new opportunities. Watch the video to find out more.

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    5 insights into a changing landscape

    Dry powder availability can drive investment in fresh opportunities and help maintain a healthy deal flow. So it's not just important to a fund's success, it also has an impact on individual career ambitions. Our latest Private Equity Trends report shows that 29% of General Partners (GPs) are more satisfied than a year ago. And 44% of those GPs had 25 to 50% dry powder available. A fund has three stages to its life cycle and GPs currently face significant challenges in two of them. At the start of the cycle, funds have money to burn. But it's harder to invest at this point in the cycle when buyers and sellers' expectations are currently so out of kilter.

    High-interest rates and inflation are also prolonging uncertainty for investors, putting even more pressure on private equity managers. At the end of their investment period funds are typically looking to sell assets, but due to the current slowdown in exits, this has proven tough.

    GPs must also retain sufficient reserves to cover portfolio issues like potential defaults and repaying bank debts. This can leave them with a limited supply of dry powder for investing. So it's a potential double whammy for GPs. They can't exit and fundraising takes longer to complete.

    Subsequently, private equity managers may find themselves missing out on opportunities and getting cut adrift from the deal flow. Right now, the funds that are halfway through their life cycle are the private equity winners. They've already made a number of investments and have dry powder available, meaning they won't have to go fundraising soon. GPs in this sweet spot are well-positioned to seize bolt-on opportunities as soon as they arise.

    

 

Are you ready to navigate a changing landscape?

The report shares valuable insights into the challenges GPs have experienced in the past 12 months and their expectations for the coming years.

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Jonathan Harvey
Jonathan Harvey

Fund Solutions

Helen Lucas
Helen Lucas

Co Head of UK Direct Lending Origination

Kate Gribbon
Kate Gribbon

Head of Financial Sponsor Coverage & Origination

Jonathan Harvey
Jonathan Harvey

Fund Solutions

Helen Lucas
Helen Lucas

Co Head of UK Direct Lending Origination

Kate Gribbon
Kate Gribbon

Head of Financial Sponsor Coverage & Origination