BrazilGlobal private equity sector signals optimism and resilience despite volatile waters
Despite market uncertainties, which are a major pain for investor appetite, private equity firms remain optimistic about their prospects and returns in 2025. That is according to research from Forvis Mazars among more than 300 private equity professionals worldwide.
The report found that a range of challenges that have been impacting the private equity sector for an extended period, such as market fluctuations, interest rates and high valuations, will continue to impact market performance in 2025.
“Global market volatility, driven by interest rates and inflation, will remain the biggest challenges in 2025, affecting both short-term gains and long-term investment strategies into 2025,” said Scott Linch, partner at Forvis Mazars.
With the wider macro-economic outlook for 2025 slightly up on the year previous and private equity funds seemingly more acquainted to the current environment, a strong majority of respondents told Forvis Mazars that they are confident in the outlook for this year, with those in North America and Asia-Pacific especially positive about portfolio growth for 2025.
Their confidence contrasts with more cautious outlooks in Europe, where geopolitical uncertainty and regulatory pressures present more significant headwinds.
Portfolio performance
In terms of performance, over 7 in 10 of surveyed leaders said that the performance of their portfolio either performs better or as planned. This is true both at the 3-year mark (funds typically hold their assets for between 3-7 years) and at exit, with differences between regions not very large.
“However, there are important nuances in the strategies being employed to address underperformance,” noted Linch.
In the case of deals eyed in 2025, financial services and technology & telecommunications remain top investment targets, attracting 51% and 47% of investors, respectively. Within these sectors, investors prioritise businesses with scalable, recurring revenue models and minimal reliance on physical assets.
Areas of focus
Alongside their core business of acquisitions and exits, the survey found that private equity firms are increasingly prioritising value creation at their portfolio companies. North American funds are leading the way in deploying operational value creation teams, said Forvis Mazars, with some expanding their operations teams by 30% in the past year to drive portfolio growth.
“Private equity firms are increasingly focused on active management and operational value creation to generate strong returns, irrespective of broader market conditions,” said Linch.
According to the survey data, the top two operational challenges are attracting and retaining senior staff, and defining and monitoring KPIs to identify improvement areas.
In their pursuit to unlocking additional value, funds are turning to digital transformation to drive efficiencies and enhance decision-making. “Extending portfolio holding periods to maximize value creation amid delayed exits and leveraging digital transformation to enhance long-term growth have been the two biggest strategies to mitigate market evolution challenges.”
“Firms that blend operational expertise with strategic foresight and adapt to changing economic conditions will continue to lead the way in driving value in the market.”
