Research Report: What to Expect from European Private Equity in 2025
Monument Group has been a prominent player in European private markets for nearly two decades. The firm established its London office in 2005, followed by the opening of its Amsterdam office in 2023, enabling the firm to expand its client roster across Europe, deepen its relationships with investors in the region, and further the growth of its capital advisory and secondary business. Across European offices, our team of ten seasoned professionals average 19 years of industry experience, offering deep expertise in European private markets. The firm proudly serves a strong roster of clients across a range of strategies, including private equity, real estate, and alternative assets.
As we look ahead to 2025, the private equity landscape finds itself at a pivotal moment. While interest rates are stabilizing and the outlook for European growth is brightening, fundraising for private equity remains challenging as investors are still waiting for distributions to materialize. Many GPs are sitting on sizeable unrealized portfolios, reportedly worth around $3.9 trillion1, creating a backlog that needs to be addressed. Bain expects the total value of exits to finish the year at $361 billion2 – and while this is a welcome 17% increase from 2023, it by no means alleviates the pressure on GPs to unlock liquidity. 2024 is still shaping up to be the second-worst year for exits – by value – since 2016.
Despite the difficult environment, Monument Group is proud to have achieved a successful year of European fundraising over the past 12 months. We have advised and supported longtime European clients Castik Capital and Altor Equity Partners who both achieved closings above target for their vehicles, with total combined capital commitments of over €6 billion. We have also successfully raised European capital for various funds in both the US and Asia this year. As we approach the new year, we consider what attributes have enabled these managers to continue to grow their platforms and attract the right investor base for the long-term, as well as the opportunities and developments which might await others coming to market in 2025.
Deals and Exits: A long-awaited pickup
After a quiet few quarters, there are signs of renewed deal activity as the bid-ask spread narrows. Sellers have become more realistic about valuations, and buyers, under pressure to transact, are willing to move closer to asking prices to get deals over the line. In the second quarter, larger deals helped to boost deal value by 7.9% from the previous quarter3, indicating a cautious but noticeable rebound. Europe saw a more pronounced 27.3% jump in deal value to €107 billion, this is good news for fundraising. Investors want to see GPs with active pipelines who are ready to capitalise opportunities in the market and who can show a real possibility of coinvestment flow. In some cases, LPs are going further and prioritising situations where funds are already partially seeded with a few deals in order to reduce J curves and blind pool risks.
While deal activity may be returning, the bigger challenge lies in achieving exits. DPI is the new IRR. According to Bain, the average holding period for private equity investments has now extended to 6.6 years, up from 5.1 years just five years ago. GPs are holding onto investments longer than before, and the pressure is on to deliver value during these extended hold periods.
According to Preqin’s Investor Outlook H2 2024 report, 80% of investors consider the current exit environment to be a key challenge in generating PE returns4. With the continued low level of corporate sales, GP-led secondaries are gaining traction across all market segments, proving to be an effective way to return capital to investors while allowing GPs to hold onto companies that may still have room for further value creation. Given the need to show liquidity to LPs in prior vehicles before they are asked to re-up, GPs are considering these and other more creative options to unlock sources of liquidity. Aside from continuation vehicles, liquidity tools being explored include NAV financing, partial exits with rollovers, and minority or strip sales.
Where are LPs looking to add in Europe?
LP allocations are likely to remain tight in 2025 or until we see these exits materialize, and as a result investors will remain largely focused on re-ups with existing, well-established managers. For emerging managers, the road ahead remains particularly steep.
However, there will be investors open to new relationships. Either to replace managers in established market segments who have not performed or those that have moved up in scale. LPs will also want to access new areas of the market – be it sectors, geographies or strategies – where they are yet to have exposure. Investors are looking for opportunities in sectors that have shown resilience and support long-term value creation for example, climate technology, healthcare, and digital infrastructure. Funds targeting these areas are increasingly viewed as providing attractive risk-adjusted returns.
While the Nordics and Benelux continue to attract outsized shares of capital from European LPs new geographies are also coming into focus. Japan and Australia are among those seen to be offering compelling opportunities right now even for European LPs. Japan became Asia-Pacific’s number one PE deal market for the first time this year5 with its persistently low-interest rates, aging demographic, succession challenges and corporate governance reforms presenting ripe opportunities for buyouts and turnarounds. This trend is expected to continue into 2025 as investors gravitate towards the country’s relatively stable economic environment and supportive regulatory framework. The outlook for Australia’s private equity market also looks bright, with steady growth driven by strong deal activity in sectors like infrastructure, technology, and healthcare.
LPs are also looking for managers with a focused strategy, and this shift will be beneficial for emerging managers with a clear, differentiated investment thesis as well as established players. Top decile buyout funds from emerging managers with vintages between 2015 and 2018 outperformed established peers by 6.6 percentage points6. Drivers of this outperformance include emerging managers’ ability to exploit niche market opportunities, maintain flexibility in smaller funds, and innovate rapidly. Spin-outs, teams that have left larger firms but have a proven track record, are in a better position to attract capital as they bring credibility alongside their unique strategy.
Artificial intelligence will be a key area of interest in 2025. Be it as an area of investment or as a key operational tool. A recent survey by KPMG7 found that 48% of private equity firms are already using AI to enhance portfolio management, particularly in areas like operational efficiency and data-driven decision-making.
2025
For private equity firms, 2025 will be something of a critical juncture. Fundraising will remain challenging until the backlog of unrealized investments is addressed. Whether through secondaries, partial exits, or other bespoke deal structures, managers will need to venture down new routes to return capital. Investors will be scrutinizing managers – old and new – more closely, seeking those who can navigate and deliver value through prolonged holding periods. With a premium on differentiation, GPs will need to bring something different or better to stand out. Continued innovation in liquidity solutions and a growing focus on new strategies, sectors and markets will make the year ahead a dynamic one. The environment looks ripe for those poised to act decisively.
1 https://www.bain.com/insights/private-equity-outlook-liquidity-imperative-global-private-equity-report-2024/
2 https://www.bain.com/insights/private-equity-midyear-report-2024/
3 https://www.moonfare.com/blog/mid-year-review-private-equity-2024
4 https://www.privateequitywire.co.uk/nearly-half-of-investors-see-pe-as-overvalued-finds-preqin/
5 https://www.bain.com/insights/asia-pacific-private-equity-report-2024/
6 https://pitchbook.com/news/articles/institutional-investors-emerging-managers#:~:text=In%20VC%2C%20for%20example%2C%20emerging,of%20returns%20across%20venture%20firms.
7 https://kpmg.com/xx/en.html