A look at the private markets in 2024

Global political instability, the presidential elections in the U.S., shifting interest rates, upheaval in the venture capital industry: How will these trends impact the private markets in 2024? In our recent webinar, The State of the Private Markets in 2024, Eugene Tetlow of Juniper Square was joined by Mark Tronstein, Managing Director, Real Estate for Andell Holdings, Travis Lee Nelson, Partner at Kirkland & Ellis, and Matt Diestel, Partner and Head of U.S, Venture Capital and Private Equity at QIC for a conversation on what the new year holds for private equity.

Here are three key takeaways from their discussion.

While regulatory, enforcement, and policy shifts may happen depending on which party claims the White House come November, those changes take time to enact, which means even the most contentious of election years often have limited impact on investment plans.

Few major laws pass in an election year, noted Tronstein. Nelson hypothesized that while federal regulations might loosen under a Republican win or tighten if 1600 Pennsylvania Avenue remains Democratic; if the other party wins a majority in either the House or Senate, gridlock will remain.

The larger geopolitical issues remain tied to global instability. With a Russian-led war in Eastern Europe, parts of the Middle East ablaze, an immigration and economic crisis in South America, and Chinese naval threats, there’s no shortage of options to choose from.

However, Diestel noted that private investments tend to look 5-10 years out. That timeline is critical to keeping the next few months in perspective.

The high-flying post-COVID valuation party is over. If startup valuations were in the stratosphere in prior years, they’ve finally returned to Earth, a process that the panel predicted will likely continue in 2024. “The multiples have been so enormous that private equity funds were able to pay because the money was cheap. And that's changed quite a bit,” said Nelson.

VC funds raised $66.9B in 2023, marking the lowest annual figure since 2017 and a significant drop from the 2022 heights of $172.8B. And while Q4 displayed a 157% QoQ surge to hit a five-quarter high of $24.2B, Diestel predicted that investors would remain conservative with new investments, waiting for valuations to settle.

But it’s not all doom and gloom for venture capital. Many funds still have the cash they’ll need to start spending, says Nelson, who predicts we’ll see more of that money unlocked for companies making the right moves and are worth their valuations.

“People are going to do more deals,” Nelson said. “They're going to have to. There's so much… in the trillions, for sure, of dry powder,” he added, referring to the amount the funds are holding and will need to invest on behalf of the investors who contributed to the fund.

Nelson claimed that the real blockbuster year is probably 2025, but 2024 will start to see that softening.

So much cash remains tied up in servicing interest rates that the real estate market won’t open soon. “The higher burden due to interest rates are just going to continue to eat up cash flow,” Tronstein said, predicting the market will remain “in purgatory” a bit longer. The key will be if and when the Federal Reserve cuts rates—expect the market to soften then. “Once the Fed does start, I think a lot of folks are going to take comfort in knowing that we're over this hump,” he added.

For commercial real estate, the empty office space now that remote work appears here to stay. No one has answers yet for how the office market will shake out, and that remains a key unknown.

“The good news,” concluded Nelson, is there’s less “panic” in the current environment.

The economy runs in cycles, the panel noted. Private equity should stay focused on the long-term horizon. Recurring events, like an election, hold less power over such investments.

As Diestel advised, to navigate 2024—or any year that feels less predictable—firms should “stick to your core approach. We're talking about a longer-duration strategy.“

Want to hear the panels take on risk, funding, and market potential? Watch the full webinar on-demand now.