The great unlock?

Will 2025 be looked back on as the year of the great unlock in private equity? Will portfolio distributions rebound, the exit market become appreciably unleashed, and deal making notably pick up?

- Steffen Pauls, chair and co-chief executive, Moonfare

Despite the pressure of global geopolitical and macroeconomic uncertainty, the answer is a cautious 'yes'. Why?

Let's start with lower rates. In combination with a stronger IPO market, they should help unblock the exit bottleneck. A slow pace of asset sales, as we've seen since 2021, reduces distributions to investors, which can limit their capacity to commit fresh capital, and reduce confidence to invest in all but the biggest and best-known managers. So exits are key to unlocking the private equity value chain.

Exits improved in 2024, especially in the US, where they were up around half in value terms year-on-year, thanks to lower rates improving financing conditions and a more receptive IPO market, according to PitchBook.

Both the Fed and the ECB continue to reduce rates, though the Fed has postponed further cuts until later this year. Lower debt costs generally spur deal-making, including exits. They reduce costs for floating rate leveraged finance instruments, which are typically used in private equity buyouts.