Profitability Lower interest rates and more realistic valuations point to a rebound in 2025. Private equity deal volume began to recover in 2024, reaching $255 billion in the first half, compared with $217 3 billion in the first half of 2023. While that’s a lot less than in the first half of 2022 ($524 billion), the first two quarters of 2024 marked what appears to be a slow and steady improvement in dealmaking. Buyers are willing to pay more for quality portfolio companies (portcos) and, to a lesser extent, sellers are reducing their expectations. Such narrowing of the valuation gap may lead to further improvement in dealmaking. Adapting uncertainty and winning in the marketplace starts with contacting a broker with deep industry However, until the market loosens, liquidity will remain expertise who can help a PE firm develop a competitive an enormous issue for many PE firms. Those in need of advantage in generating returns. liquidity continue to access the secondaries market, with an estimated $71 billion in activity in the first half of 2024 4 3. EY, “Private Equity Pulse,” July 25, 2024. and a predicted $150 billion for 2024 as a whole. The secondaries market should continue to thrive in 2025. 4. Lazard, “Lazard Interim Secondary Market Report 2024,” September 5, 2024. As it remains difÏcult to implement exit strategies at 5. Moonfare, “Private equity asset allocation,” September 2, 2024. acceptable valuations, PE firms are awash in undeployed capital, with $2.6 trillion of dry powder held by firms globally. Meanwhile, institutional investors — whose portfolios are 22% invested in private equity5 — may be considering a pullback to rebalance their portfolios, further hampering liquidity. As they hold back new investments to rebalance their portfolios, a growing liquidity issue may continue to hinder the formation of new funds in the coming year. PE firms must find innovative ways to build portco value and position them for success. Those firms with effective insurance and risk management plans will be in a strong position to profit in 2025, no matter which direction the market heads. 3