2024 PRIVATE MARKETS OUTLOOK
A NOTE FROM JEFF DIEHL
Optimism Builds as Headwinds Ease
Optimism about the outlook for private markets is improving, according to our fourth annual Global Investor Survey. Private markets were buffeted over the past year to 18 months by headwinds including a drop in liquidity as exit options narrowed; a challenging fundraising environment as allocations exceeded portfolio limits amid public market declines; and pressure on returns from higher interest rates, inflation and supply chain constraints, caused in many cases by geopolitical tensions.
There are indications that these pressures are easing. The US Federal Reserve is expected to begin cutting interest rates in 2024 after inflation receded faster than expected. That could be a catalyst for an uptick in M&A and dealmaking overall as managers put dry powder to work. Liquidity options may widen as the initial public offering (IPO) market again shows signs of life following share sales in late 2023 by UK chip designer Arm Holdings,1 Instacart parent Maplebear Inc.,2 and marketing automation provider Klaviyo Inc.3
More realistic valuation expectations by founders may also benefit venture and growth equity strategies, as companies that delayed returning to market during 2022 and 2023 seek funding to keep growth on track at a time when a number of non- traditional investors have exited the market, creating excess demand for capital.
Partly due to these factors, two-thirds of survey respondents expect to increase private market deployments in 2024, while almost nine in 10 believe that private markets will continue to outperform their public market equivalents over the long term.
But there are always risks. Perhaps the biggest “known unknown” is that almost half the world’s population has the opportunity to vote in national elections in 20244 in countries including the US, Mexico, Ukraine, Russia, India, Pakistan, South Africa, and a number of western European nations. This creates trade and regulatory uncertainty.5
Risks notwithstanding, investors are increasingly confident that private markets will play a pivotal role in ongoing and emergent megatrends, such as generative artificial intelligence (AI). Two-fifths of respondents expect the greatest investment opportunities in 2024 to be in technology and healthcare, sectors that we see benefiting significantly from generative AI applications.
To take advantage of such opportunities, most survey respondents say they prefer to work with private markets managers with scale and a platform that crosses multiple strategies.
The era of ultra-low rates is over. Private equity investors can no longer rely on “beta” from macro tailwinds to lift all boats. Generating repeatable alpha requires skillful identification and selection of companies by the private equity investor. Those that can apply resources repeatedly across market cycles to help companies achieve their maximum growth and profit margin potential relative to their peers have historically been best positioned for resilience and growth.
At Adams Street, we remain excited about the opportunities that we see globally in private markets.
– Jeff Diehl, Managing Partner & Head of Investments, Adams Street Partners
EXECUTIVE SUMMARY
Opportunity Knocks as Change Accelerates
Investors remain optimistic about the long-term outlook for private markets. Confidence appears to come from a belief that private markets have the structural flexibility to navigate near-term challenges such as geopolitical uncertainty and more muted global growth, caused in part by interest rates and inflation remaining above target in many markets. The resiliency of businesses to adapt to change and the transformative opportunity of technology megatrends such as AI have given investors confidence that private markets will continue to offer attractive investment opportunities in 2024 and beyond.
Our annual global survey of institutional investors shows almost nine out of 10 agree that private markets will continue to outperform public markets in the long run. Fundraising and deal activity slowed during 2023 amid a higher cost of capital in major markets including the US and Europe. This misalignment in valuation expectations between buyers and sellers dampened returns. Investors believe valuation disconnects may begin to reverse in 2024 as IPO activity increases, as growth-stage companies that delayed financing rounds return to market, and as limited partners (LPs) increase allocations to private markets as a percentage of total assets following advances in public markets. In 2024, almost half of the world’s population is eligible to vote in elections,6 and investors are aware they will need to skillfully navigate political uncertainty in important markets worldwide.
What Institutional Investors are Thinking
Adams Street’s fourth annual global survey of institutional investors found:
- 88% of respondents agree that private markets will continue to outperform public markets in the long run, up from 86% in last year’s survey
- 67% of investors expect to increase private market deployments in 2024
- 39% of respondents view rising interest rates and inflation as the biggest challenges in private markets, down from more than half a year ago
- 88% of investors expect interest rates to be lower at the end of 2024
- Over 60% of investors say environmental, social, and governance (ESG) considerations are a determining factor in their investment strategies
- Half of respondents identified financial services as the sector they expect to offer the best investment opportunities in 2024, followed by technology, healthcare, software, and energy
- Over half of respondents say political uncertainty in the US is the biggest geopolitical risk in 2024
- 21% of respondents said North America offers the best investment potential in 2024, a drop of 5 percentage points from a year ago. 19% said the best investment opportunities will be in China, 3 percentage points lower than last year. Emerging Asia-Pacific saw a 4 percentage point rise to 13%, while Europe saw a 2 percentage point rise to 20%
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DISCLOSURES / IMPORTANT NOTES
1. Reuters, “SoftBank’s Arm soars nearly 25% in market debut to $65 billion valuation”, September 2023.
2. “Instacart Announces Pricing of Initial Public Offering”, September 2023.
3. “Klaviyo Announces Pricing of Initial Public Offering”, September 2023.
4. The New York Times, “Elections and Disinformation Are Colliding Like Never Before in 2024”, January 11, 2024.
5. Anchor Change, Election Cycle Tracker.
6. The Economist, “2024 is the biggest election year in history”, November 13, 2023.
This information is not investment advice or an offer or sale of any security or investment product or investment advice. Offerings are made only pursuant to a private offering memorandum containing important information. Statements are made as of the date of this release, and there is no implication that the information contained herein is correct as of any time subsequent to such date. References herein to specific sectors, strategies, or investments are not to be considered a recommendation or solicitation for any such sector, strategy, or investment. Past performance is not a guarantee of future results. Projections or forward-looking statements contained in the Paper are only estimates and there can be no assurance that the results set forth in the projections or the events predicted will be attained, and actual results may be significantly different from the projections. Also, general economic factors, which are not predictable, can have a material impact on the reliability of projections or forward-looking statements. Adams Street Partners, LLC is a US investment adviser governed by applicable US laws, which differ from laws in other jurisdictions.
