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The private equity market faces the challenges of monetary normalization.

In 2023, the private equity sector has come to a standstill after a period of euphoria. Investors must now adapt to a new financial context. This article by Estelle Dolla in Investissement Conseils / Profession CGP explores the evolution of private equity, also known as unlisted investment, and the opportunities offered by private equity platforms. Here are the Tribune's key points.

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Key figures for private equity in 2023

Recent data show a significant contraction in the private equity market. The value of buyout investments has reached $438 billion, down 37% on 2022 and 60% on 2021. In addition, the number of funds closed decreased by 38% compared to 2022 and by 55% compared to 2021.

Impact of rising interest rates

Rising interest rates between spring 2022 and summer 2023 have made borrowing more expensive, impacting private equity prices. Funds must now adapt to an environment where money once again has a cost.

Evolution of the unlisted assets market

Despite the recent slowdown, the unlisted asset market has experienced spectacular growth over the past decade. By 2023, the market represented $13,100 billion in assets, a significant increase on the post-financial crisis period of 2009.

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Growth in private equity funds

The number of listed companies in Europe and the USA fell by 23% between 2010 and 2020, while the number of companies financed by private equity rose by 74%. This change underscores the growing importance of private equity in financing companies with high growth potential.

Diversity of private assets

Private equity is not limited to buyout funds. In 2023, buyout funds accounted for only 30%** of private assets, while venture capital accounted for 21%**. The remainder was split between development capital, private debt, real estate and infrastructure.

Fundraising in 2023

In 2023, $1,200 billion was raised on the global private equity market. Although this represents a drop of 30% on the 2021 record, it is comparable to the 2017 level. Buyout funds have almost returned to record levels, with $448 billion raised.

The European and French private equity market

North American funds dominate the global market, accounting for 54% of private assets. In Europe, the market has shown resilience, with 420 billion euros of deals in 2023. In France, 328 billion euros were raised and 312 billion invested.

French private equity champions

French players such as Ardian, with $1650 billion** in assets, and Antin Infrastructures Partners, with $30 billion**, play a major role on the world stage. The diversification of French clients towards individuals and family offices has also marked a significant evolution.

Where to invest in 2024?

Opportunities in Private Debt

Private debt offers attractive opportunities for investors. With the prospect of lower interest rates in Europe, investors can consider direct lending, which offers annual yields of 9 to 10% with controlled risk. Mezzanine debt funds, although riskier, offer IRRs of 13 to 14%. Past performance is no guarantee of future returns. Investing in unlisted companies is risky.

Diversification of investment strategies

Investors can diversify their strategies by opting for sponsored or sponsorless debt, each with its own advantages. The former allows for efficient implementation with a slightly lower yield, while the latter offers higher performance potential.

Conclusion

The year 2024 could see further diversification of unlisted investments, particularly towards private debt. Investors should exploit the diversity of private assets to optimize their portfolios and take advantage of the opportunities offered by private equity.

Read Estelle Dolla's full opinion piece on Profession CGP.

Sources : - Dealogic 2023 - McKinsey study based on Preqin 2022 figures - Pantheon study 2021 - Pitchbook 2024 - France Invest 2024

Disclaimers and risks associated with unlisted investments

Private Corner is a company approved as a portfolio management company on 05/11/2020 by the Autorité des marchés financiers under number GP-20000038 . Investing in alternative investment funds (AIFs) involves risks of capital loss and liquidity. Investment in the funds is reserved for professional or sophisticated investors as defined in the funds' legal documentation. Past performance is not a guide to future performance, and there is no guarantee that objectives will be achieved. The information provided in this document is for guidance only, based on information available at the date of publication. The analyses and opinions contained herein should not be construed as having any contractual value. The authors cannot be held responsible for the content of this document. It is a presentation and should not be considered as a substitute for the study itself. The recommendation and/or formulation of investment advice by the financial investment advisor will be contained in the said study. Investments in the unlisted asset class are intended for sophisticated investors. This asset class entails the following risks in particular: risk of capital loss, risk of default, liquidity risk. This type of investment has a minimum lock-up period, and investors should pay particular attention to the fact that it is a long-term investment. Anyone wishing to invest in funds managed by Private Corner must be fully aware that their capital is not guaranteed, may not be returned or may only be partially returned, and is not intended to constitute their entire portfolio.

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