Capital markets in transition
17 February 2025
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Global markets are set for a shift in 2025, as central banks are poised to ease monetary policy. The overhang of geopolitical tension and tariff wars could push this to the second half of the year, however.
Private equity fund raising in the US declined for a third year, with 40 funds securing capital in 2024, less than half the 85 recorded five years ago. However, US PE deployment hit a record US$2.7 trillion, driven by improved financing availability. The higher rate environment has contributed to swing returns towards operational value creation, now 70% of PE returns, versus 18% only a decade ago.
Australia’s private capital fund raising experienced a pivot to private debt last year. Until December, private debt fund raisings (28%) were greater than private equity (22%) for the first time.1 Private equity fund raisings pulled ahead late in the year with a fund close by Genesis Capital and Quadrant Private Equity. Private credit and growth equity continue to be a serious alternative funding source for growth, shareholder liquidity, and for facilitating more creative solutions.
Despite the notable ASX listings of GYG and DigiCo on the ASX, these transactions were not sufficient to encourage investors to support other large candidates to launch IPOs, forcing financial sponsors and private owners to rely on recapitalisations, secondary exits, and stock-based mergers for liquidity. Sigma’s merger with Chemist Warehouse for instance, highlighted how non-traditional deal structures provide a path to liquidity and are likely to become a more regular path to exit or liquidity.
ASX sell-side growth forecasts remain anaemic. Lagging the US, ASX200 earnings are predicted to grow only c.1% in 2025, and M&A activity may increase to fill the organic growth gap. Consumer-facing sectors may also seek to counter slowing demand, while B2B consolidation will remain focused on cost efficiencies and margin expansion.
Following several high-profile governance issues at founder-led firms, shareholder activist strategies could stage a comeback in 2025. Shareholders may become more alert and emboldened to employ activist strategies, such as pushing for board changes, asset divestitures, and improved governance to unlock value. This is counter to a backdrop of fund flows away from activist and short only funds here and abroad.
Source: 1Preqin
More from the author, Andrew Fressl
With private debt nearly surpassing private equity in funds raised in 2024, Australia’s private capital markets are in a state of transition. Private capital is increasing financing options, as well as funding business growth and shareholder liquidity. This will become an even more attractive proposition for business owners while Australia’s IPO market remains subdued.
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