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The private equity sector experienced a more significant decline in 2024 compared to the 2008 global financial crisis, with assets under management falling by $4.7 trillion, a 2% decrease from the previous year.
Private equity managers have had a hard time raising funds and delivering returns to investors due to challenges in selling assets.
Large pension funds and endowments are experiencing setbacks, according to Hugh MacArthur, Bain’s global private equity president. He mentioned to the Financial Times that they are seeing more money leave their accounts than enter, with the flow of liquidity back to investors remaining strained.
Between June 2023 and June 2024, investors experienced a significant drop in the capital return ratio, receiving only half of the usual average with a return value of 29%.
Industry distributions and liquid assets had the lowest relationship in over a decade, falling to just 11%.
Pension funds rely on the returns from these investments to meet their obligations, making this situation particularly detrimental to them.
Investors were more careful and uncertain, leading to a 23% decrease in private equity fundraising, with only $401 billion raised, the lowest amount since 2020.
The market for mergers and acquisitions saw a recovery in various regions of the world, with funds selling assets worth $468 billion during the analyzed period, despite the challenges encountered.
Pressure is expected to continue in the private equity industry for an extended period.
The private equity sector is facing challenges due to a shortage of new resources and struggles in generating returns, resulting in a growing problem.
When Bain conducted its analysis, managers encountered a $3 trillion backlog of outdated and unfinished businesses, adding to the industry’s existing challenges.
Hugh MacArthur, global private equity president at Bain, anticipates that the ongoing pressure will persist in the following years, despite a seemingly improved outlook for 2025. To support this perspective, he notes that while funds are currently managing nearly double the amount compared to 2019, the yearly sales volume has remained nearly stagnant. MacArthur stated that this issue will not be resolved by 2025, emphasizing that it is a challenge spanning three to four years.
The industry is experiencing structural changes, including a 2% decrease in the standard administration rate, as more sovereign and pension funds are making direct investments in businesses, leading to reduced sector revenues.
In Brazil, investments in funds totaled R$13.3 billion in 2024, down by 44.3% from the previous year, as reported by a study from Abvcap. The number of transactions also declined, with 70 deals compared to 84 in the previous year, while divestments amounted to R$10.1 billion amid market volatility.
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