Green shoots emerge in H1 2024 private equity, venture capital activity; survey points to improving sentiment amid rising focus on AI

• Green shoots in exits, VC investment turns corner, amid ongoing challenges in H1 activit

• Increased activity expected in next 12 months, AI becomes leading target investment sector 

Brussels, Belgium, 12 November 2024, 1100 AM CET - Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, today published ‘Investing in Europe: Private Equity Activity H1 2024’, that shows green shoots in exit activity from the end of last year, despite continued challenging conditions for fundraising and investments. Invest Europe also released ‘The insight: State of the European private equity industry’, its annual sentiment survey, in collaboration with Arthur D. Little, which points to improving industry optimism around divestments, fundraising and investments, and an intensifying focus on AI as a theme for new investment and operational improvement.

• Private equity and venture capital exits at cost in the first half of 2024 increased by 5% to €14.1 billion compared with the second half of 2023, although were down year-on-year, as inflation stablised and central banks kicked off the interest rate cutting cycle towards the end of the period. While below historical levels, IPOs picked up to account for 9% of exits at cost, while sales to other private equity firms and trade sales represented 35% and 25% of exit value respectively.

• Fundraising weakened sequentially by 28% compared to the previous semester to €59 billion but was up 16% year on year, driven primarily by stronger capital raising in the Nordic region. Investments dropped year-on-year and compared with the prior half to €40 billion as buyout and growth investment remained challenging. Venture capital investments turned a corner, increasing by 26%, or approximately €1.7 billion compared with the first half of the previous year, to €8.2 billion as valuations stabilised and funding flowed into rapidly growing start-ups in AI and other tech fields.

Released in tandem with Invest Europe’s H1 activity data, the fifth annual edition of Invest Europe’s pan-European market sentiment survey for 2024, The insight: State of the European private equity industry gives a forward-looking view of expectations and priorities for the industry. Conducted in partnership with global management consultancy Arthur D. Little, the survey of more than 250 managers and investors highlights improving optimism about activity over the coming 12 months – and in the medium term – as the macro backdrop stabilises and new technologies create new opportunities for evolution and expansion.

• GPs intend to intensify their focus on exits with 66% stating they expect to focus on it more in the next year than in the previous year. As a result, 71% of managers see more exit transactions in the next year compared to the last 12 months, a sentiment echoed by 68% of LPs. 40% of GP respondents expect more auctions, while 29% foresee more exits via IPOs, both figures showing sharp increases on the last two years. A rising tide of exits is expected to lead directly to an improved investment environment, with 68% anticipating more buyouts of businesses already owned by other private equity firms.

• 83% of GPs expect the same or higher levels of fundraising in the next year, compared with just 50% in last year’s survey, as the expectation of higher distributions feeds new capital raisings. The result is in tune with investor views as over 90% of LPs expect higher capital commitments to private equity over the next three years.

• The survey shows AI as a major theme for the industry. 68% of GPs believe Deeptech & AI investments will be relatively more attractive than before, up sharply on previous years. Managers believe that AI-driven work practices will have the largest impact on the industry’s daily operations, with 82% of GPs stating they expect more focus on attention to work practices supported by AI in the near future, as firms look to integrate the technology into the day-to-day operations and boost productivity at their portfolio companies. The potential risks to businesses posed by AI are also high on the agenda with 68% of GPs expecting increased focus on the technology in their due diligence assessments.

While the survey highlights industry focus on transformational technology, it also demonstrates the continued importance of ESG standards and improvement. Some 68% of LPs expect to pay more attention to ESG issues in the near future, in line with last year, while 53% of LPs increasingly expect managers to register their funds as Article 8 or Article 9 under SFDR regulation, effectively meaning vehicles that have a strong focus on ESG objectives or position themselves as “impact” funds. At the same time, more investors are prepared to back investments in defence – mainly those with dual-use application, but also solely for military purposes – indicating how investor approaches to ESG have evolved and attitudes to defence have shifted.

Eric de Montgolfier, CEO of Invest Europe, commented:

“Private equity and venture capital activity remained challenged in the first half, yet there are signs of green shoots. It is also clear that investors overwhelmingly support the asset class, and that both they and managers are more optimistic about the future. With record levels of dry powder, and a focus on AI, deeptech and other opportunities, private equity is well placed to help drive innovation, competitiveness and sovereignty in industries that make a real difference to European citizens.”

Jonas Fagerlund, Partner and responsible for Private Equity segment at Arthur D. Little, said:

“Our report shows that an improving macro economic backdrop is beginning to have a positive impact on sentiment within the European private equity and venture capital industry. Stabilization in inflation and falling interest rates are feeding green shoots, as seen by modest increases in exits in the first half of 2024, backed up by the data from Invest Europe’s activity report. This positive trend is expected to accelerate along with fundraising and investment activity. However, volatility and uncertainty are never far away. Escalating conflict in the Middle East and the actions of the new US administration could have global implications - these risks are unpredictable but cannot be underestimated.”

The findings of the survey echo those of the Venture Capital Survey 2024, released in October in partnership with the European Investment Fund. It found over half of those surveyed seeing a better exit environment over the coming 12 months, feeding into expectations of a better fundraising climate.

To read both the H1 private equity activity data and the private equity sentiment survey, please click here.

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Invest Europe is the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors. We have over 650 members, split roughly equally between private equity, venture capital and limited partners – with some 110 associate members representing advisers to our ecosystem. Those members are based in 57 countries, including 42 in Europe, and manage 60% of the European private equity and venture capital industry’s €1.15 trillion of assets under management. Businesses with private capital investment employ 10.9 million people across Europe, 5% of the region’s workforce.

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