Much of the billions of dollars that private-equity firms invested during the pandemic in 2020 came with five-year deployment periods, meaning this capital must be invested by 2025. With a less-than-electrifying market as of late, some managers might need to ask investors for more time to get that done.
The Wall Street Journal reports that rising interest rates in the U.S. stymied private equity’s deal-making activity between mid-2022 and mid-2024, dramatically slowing both the pace of capital deployment and distributions to fund investors. As a result, the pace of fund investments also fell.
As of March 2024, the most recent available data shows that globally, private-equity firms still had more than $500 billion of so-called dry powder—capital raised but not yet invested—sitting on funds from the vintage years of 2020 and 2021 alone, according to data provider Preqin.
While many bankers and dealmakers remain bullish that 2025 will see a surge in deal and exit activity—thanks partly to lower interest rates and an anticipated more favorable regulatory environment—other observers are cautious, pointing to the gap between seller and buyer expectations on company valuations as an ongoing drag on dealmaking in 2025.
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