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Shadows cast over the private equity fund market

While private equity funds remain dominant players in global financial markets, the current financial and macroeconomic trends may cast some dark clouds over them. Investors will therefore be forced to adjust their proven strategies to achieve or at least approach the returns they have historically experienced.

Private equity funds: a dominant market force, but slightly less dynamic 

Private equity funds (PE) have always been major players in the M&A market, with the amount of money managed by PE funds tripling globally since 2007 (from USD 787 billion in 2007 to USD 2331 billion in June 2022)*. However, there are signs of stagnation in private equity fund activity:  in the second half of 2022 (Q3)** – in the EMEA region – the figures were down by nearly 68-70% in value and 47-50% in volume compared to the same period in 2021.

Experts of RSM Hungary summarised the outlook and expectations of some private equity fund representatives invited to the RSM Global Conference, regarding the current hectic macroeconomic environment.

In the global market, private equity funds currently have more than USD 2,300 billion* of capital waiting to be invested.  This is the amount of capital already committed to the funds, which they are expected to be spent over the next 5 years.  In Q3 2022, the number of deals [2,036 deals] and deal value [€244bn] were at pre-Covid-19 levels [~2,300 deals, ~€220bn in value (Q4 2019)]. ***


EMEA M&A activity 2019-Q3 2022

However, the current market and macro-economic environment (inflationary pressure, monetary policy, energy situation, global supply-demand conditions, public deficits, etc.) may significantly modify the investment strategy of funds:

  • More mature industries will be more popular investment targets;   
  • Investments may be directed to distressed companies or more complex transactions; 
  • The number of carve-outs/demergers is expected to increase in the future.
  • Important investment considerations will be raw material and energy prices. The technology, media and telecommunications industries will remain popular.  
  • Energy, mining and utilities is a new emerging target in the investment market (5 out of the top 10 deals closed in EMEA in Q3 2022 were in this industry). 
  • The traditional exit strategies of the past will become more limited: sales between private equity funds may become more frequent, the number of professional investors may decrease, and going public (as an external fundraising option) will become virtually impossible. Accordingly, companies will face new challenges of financing due to the general increase in borrowing costs.
  • It is becoming increasingly difficult for start-up funds to raise capital and external funding (due to uncertainties and delays),making it more expensive for them to finance acquisitions.

Overall, the current situation requires private equity funds to take a new strategic direction in order to achieve or at least approach the returns they have seen in the past. However, despite the gloomy outlook, private equity funds remain dominant players in global financial markets. 


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