Real Estate

By Ben Ingram

As we approach the final quarter of 2024, the real estate investment market has improved over the last 3 months but remains cautious, with limited activity as investors await further valuation corrections amid high finance costs. The UK has adjusted faster than its European counterparts and Germany seems to have a long way to go; however, all markets appear to be in a holding pattern, as stakeholders wait for greater signs of stability.

Certain asset classes, though, are gaining traction. Major investors and developers are diversifying their portfolios, increasingly focusing on living assets, life sciences, data centres (particularly in the "edge" segment), and logistics, especially "last mile" delivery facilities. These sectors are seen as more resilient and are drawing attention, but meaningful engagement often requires specialised teams or niche corporate acquisitions.

Talent acquisition has shifted towards professionals who can enhance property value through strategic asset management, as well as those with strong investor relations skills to deploy capital effectively. There’s also a growing demand for experts who can originate European commercial real estate debt and navigate the long-term challenges posed by ESG criteria and data management. As the market stabilises, firms that adapt to these evolving dynamics will be better positioned for success in the coming year.

Generally, though, there remains a focus on cost rather than opportunity. Leaders in Real Estate across Europe broadly know the strategy they are adopting as we move towards what many see as being a ‘great vintage’, and the talent they need to execute on these strategies. The dilemma is the cost of hiring now versus not having the right talent ‘on boarded’ in time to make the most of an improving market.

Distribution

By Roger Threlfall

As we approach the final quarter of 2024, the private markets landscape remains marked by cautious optimism and ongoing challenges. While there are signs of recovery compared to the previous year, fundraising levels are still considerably lower than historical highs.

The persistent impacts of the denominator effect, which emerged from the turbulence in public markets in 2022, continue to loom large. Although interest rates have stabilised, many Limited Partners (LPs) remain wary, still grappling with inflationary pressures and geopolitical uncertainties. Consequently, LPs are focusing on maintaining liquidity, which has kept commitment levels to private market strategies subdued.

The secondaries market has shown robust activity, with demand for liquidity driving significant interest. According to recent reports, secondaries funds in 2024 have raised approximately 25% more year-over-year as LPs look to rebalance their portfolios. Blackstone, a major player in this space, has reported it is planning to launch its biggest secondaries fund yet, surpassing the size of its secondaries flagship fund, which closed on $22.3bn in 2023. This highlights the continuing shift in investor behaviour as they seek more flexible solutions.

In this climate, LPs are increasingly inclined to support their larger existing General Partners (GPs), making it particularly challenging for new managers to raise their inaugural funds. This shift underscores a growing trend: LPs prefer to back known entities with proven track records, further complicating the landscape for emerging fund managers.

Regionally, the EMEA market shows varied dynamics, with the Middle East remaining a standout area for fundraising. Firms continue to target the private wealth channels, as these entities express a growing appetite for private market exposure. GP’s recognise the potential of high-net-worth individuals and family offices to supplement institutional commitments.

Looking ahead, the consensus among industry experts is that the macroeconomic environment is unlikely to change significantly in the near term. As we move into 2025, the fundraising climate in private markets is expected to remain challenging, with LPs continuing to prioritise stability and liquidity over aggressive commitments. As such, firms will need to adapt their strategies to navigate this complex landscape and align with the evolving preferences of their investors.

Infrastructure & Energy Transition

By Natalia Hudziak

As we close out 2024, the infrastructure fundraising landscape has shown signs of cautious recovery, following a challenging first half of the year. While Q1 2023 set a record low with only $3.6 billion raised—down from $65.2 billion in Q1 2022—the momentum in the energy transition sector remains strong. Notably, new fund launches continue, including I Squared’s $2 billion energy transition vehicle and TPG’s $3 billion target for their third Rise Climate fund.

However, fundraising remains competitive and complex. Managers must now demonstrate strong track records and adeptness in navigating regulatory hurdles while addressing LP concerns regarding returns, which are under pressure from high inflation. This competitive environment has led many funds to adjust their strategies, with a notable trend toward taking on more risk by investing earlier in the value cycle—accepting construction and development risks in renewables.

Moreover, the rise of higher-yielding infrastructure private credit strategies is becoming prominent. Firms like Apollo Global Management, Inc. and Macquarie Group’s FitzWalter Capital are exploring unconventional transactions aimed at delivering private equity-style returns. Looking ahead, while sporadic hiring is expected, particularly for new strategy launches, the overall market will likely remain subdued compared to the pre-pandemic highs.

Portfolio

By Maria Naumčeska & Jasmina Kalin

In the final quarter of the year, hiring within PE backed and Family Office-owned portfolio companies is increasingly reflective of the dynamic shifts reshaping the business landscape. As organisations navigate the complexities of the current economy, the demand for talent that can drive innovation, and adaptability has never been more critical. Companies are prioritising candidates who not only possess technical skills but also demonstrate the ability to lead through change and foster resilience in their teams.

This quarter, we are witnessing a pronounced focus on executives who excel in digital transformation initiatives. As businesses aim to optimise operations and enhance customer experiences, leaders with a proven ability to integrate technology into core strategies are in high demand. Companies are looking for professionals who can harness data analytics, artificial intelligence, and machine learning to derive actionable insights and make informed decisions that propel growth.

Moreover, the emphasis on sustainability continues to gain momentum, with firms seeking talent who are well-versed in eco-friendly practices and can implement strategies that align with broader corporate responsibility goals. Executives who understand the importance of integrating sustainable practices into business models are becoming essential as investors increasingly favour companies with strong environmental, social, and governance (ESG) credentials.

The need for cultural alignment remains paramount this quarter. As organisations prioritise agility and innovation, candidates who embody a growth mindset and possess strong interpersonal skills are highly valued. Firms are focusing on individuals who not only fit their existing culture but can also contribute to evolving it in a way that encourages collaboration and diversity. This shift recognises that a diverse workforce fosters creativity and resilience, enabling companies to better navigate the complexities of the market.

Additionally, there is an increasing trend towards hybrid work models, which necessitates a unique set of leadership qualities. Companies are searching for leaders who can manage distributed teams effectively, ensuring productivity while maintaining team cohesion. This new way of working requires a focus on communication, empathy, and adaptability, as leaders must cultivate an environment where all team members feel engaged and empowered. Moreover, many companies are now prioritising candidates willing to be in the office more frequently, recognising the benefits of in-person collaboration and fostering a stronger team culture.

Ultimately, this quarter represents a pivotal moment for PE Portfolios as they assemble teams that are not only equipped to handle current challenges but are also poised for future growth. By strategically hiring talent that aligns with their vision and values, these firms are laying the groundwork for sustainable success in an ever-evolving marketplace. This approach ensures that they are not just filling roles but building a resilient and innovative workforce ready to tackle the opportunities and challenges ahead.

Venture Capital

By Hugh Barran

There appears to be three types of funds emerging in this venture capital fundraising environment. The mega funds and tier one players, such as Andreessen Horowitz, General Catalyst and ICONIQ Growth have raised between them north of $18bn+ this year. This shows that regardless of the macro environment, funds of this calibre can continue to raise larger and larger vehicles.

There are also the sheer outperformers, usually pre-seed and seed managers that have had a homerun success and generated astonishing returns for their LPs. We spoke with one seed fund recently, who wrote a cheque into Sorare at $2.2mn valuation and took a decent chunk of their stake off the table at a $3.4bn valuation.

There are also funds such as SignalFire, who are creating materially different products to the traditional venture capital model and have continued to produce interesting returns using AI and data in a differentiated way from many other managers.

These are the funds that we believe will stay in business but also be the major beneficiaries of the AI boom. For smaller or less differentiated firms, we envisage the next 24 months to continue to be very challenging.

With talks of Google considering a $23bn acquisition of Wiz, that could be a huge boom for the venture industry and hopefully kickstart some much-needed liquidity that has crippled the industry for the last 18 months and made fundraising very challenging. A few green shoots seem to be appearing, that could make for an interesting start to 2025.

Credit

By Georgia Mernagh & Dinah Cencig

In the final quarter of 2024, private credit markets continue to show resilience despite a backdrop of ongoing economic uncertainties. Despite the pressures of high interest rates and inflation affecting portfolio companies, private credit continues to grow. Unlike other forms of leveraged finance, private credit offers the ability to close deals swiftly, providing companies with certainty in an unpredictable environment. This flexibility is critical as businesses look to adapt their capital structures to withstand economic fluctuations.

With unitranche yields now reaching double-digit levels for performing strategies, the next 12-18 months could unveil significant prospects for growth within the private debt sector. In the second half of the year, we have already seen a renewed interest in hiring within European middle market direct lending both from local funds and also larger US players such as Oaktree Capital Management, L.P..

The demand for fund finance is also expected to grow as fund managers look for flexible financing options to support portfolio expansion, acquisitions, or distributions. This year, NAV lending has been a hot topic in both Europe and the US with funds such as Pemberton Asset Management, Partners Group and Arcmont Asset Management making key senior hires. We expect this trend to continue in 2025 as many of the US asset managers with private credit businesses are looking to add this to their offering.

With the volatility in public markets and rising interest rates, structured credit and asset backed lending has gained momentum. Private credit investors are turning to asset-backed lending (ABL) and collateralised loan obligations (CLOs) as a way to mitigate risks while maintaining attractive yield profiles. In Europe, we have seen an increase in managers bolstering their liquid strategies such as LGT Capital Partners launching a new primary CLO business.

We have also seen an increase in managers bolstering their asset backed lending capabilities. This includes real estate, aviation, and auto loans, where collateralisation helps reduce exposure to credit risk. The European asset backed landscape is not as developed as in the US where funds such as Ares Management Corporation, Apollo Global Management, Inc. and Blackstone have raised large dedicated funds which can invest into portfolios of loans, financial receivables, fees or royalties. Moving into 2025, we expect to see an increase in private debt funds hiring senior investment professionals who can bring a track record within this space.

Private Markets: November 2024

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