PUBLICATION: Rede Liquidity Index 2H 2024

Welcome to the 14th edition of the Rede Liquidity Index (RLI), looking at institutional investor sentiment towards Private Equity (“PE”) in the second half of 2024. The latest data shows a four-point uptick in LPs’ intention to allocate more capital to Private Equity funds, resulting in an overall RLI score of 60 in the second half of the year. The whole-year pattern for 2024 compared with 2023 is similarly positive: while a first half year rise in the RLI in 2023 was followed by a flattening of sentiment in the second half, by contrast 2024 saw a sustained and steady increase, with the RLI beginning the year at 49 and ending at 60.

Key findings from the report:

1. Fundraising ‘thaw’ now well underway

   The RLI score for 2H 24 saw a 4-point rise to 60. Unlike in 2023, when an increase in the RLI score in 1H was followed muted sentiment and momentum throughout the second half of the year, 2024 saw a sustained rise, with a full-year increase of 11 points. This represents a significant uptick in LPs’ intention to allocate capital to Private Equity funds. While fundraising conditions remain challenging, the continued rise in the RLI reinforces the cautious optimism we expressed in our last report. It seems fair to say that a recovery in fundraising momentum is now well underway.

2. Confidence in distributions at a three-year high

   A key driver of the fundraising thaw is growing LP confidence around the pace of distributions. Confidence about exit liquidity continued to rise in 2H 24, with the RLI score for distributions reaching 70, an 11-point gain on the previous six months. This score has surged 40 points in the last twelve months and is now only 3 points lower than the all-time peak of 73 in 2H 21. With distribution pace remaining the number one issue for LPs (67% of investors cited “slow pace of DPI” as a key concern as they plan their investment activity for 2025), it is no surprise that the managers benefitting most from the increase in fundraising momentum are those who have delivered strong exit activity.

3. LPs actively seeking new relationships, at the expense of re-ups

   The RLI for new money commitments has continued its sharp upward trajectory, with a sixth month shift from 61 to 64, and a total increase of 26 points since the low point in 2H 22. The strong score for new relationships contrasts strongly with a score of 47 for re-ups, which indicates that LPs expect to reduce their deployment to existing relationships over coming months. While the historical RLI data shows us that the current broad pattern of a preference for new relationships may be the natural state for the asset class, the divergence in outlooks for new and existing relationships has been unusually accentuated in the last year. In practical terms, the rising enthusiasm for new relationships at the expense of loyalty to existing ones is driving a bifurcation within the fundraising market, with the re-emergence of a seller’s market for the most in-demand GPs. The number of LPs citing “access to the most attractive funds” as a key concern for 2025 was up 15 percentage points to 44% - reflected in a small number of recent examples of very rapid, highly oversubscribed or “one and done” fundraises. Our experience suggests that, overall, investors are interested in building relationships with GPs they view as ‘ready for the future’, with a clear edge and sophisticated specialist expertise..

4. Appetite for US-focused funds remains strong, lower-mid- and mid-market buyouts continue to rise

   Following an eight-point rise in ‘in-bound’ RLI for North America in 1H 24, LP demand for North America-focused funds in 2H 24 remained at 65. While this indicates that investors in all geographies are expressing strong appetite to deploy capital into North American-focused funds, the halt in the upward trajectory and a rise in the score for out-bound capital from 50 to 59 perhaps reflect some policy uncertainty. Elsewhere, in-bound interest in Europe suffered a fall of five points to 53. Although a score of 53 still indicates an overall intention on the part of LPs to expand deployment to funds focused on Europe, sentiment is clearly more muted than it was previously. The in-bound RLI for Asia focused funds has stayed markedly low at just 29, a rise of only one point on 1H 24, though there has been a fall of 3 points in LPs around the world planning to reduce commitments to the region over coming months. Meanwhile, lower mid-market and mid-market buyouts have continued their recent rise in popularity, reflecting on the one hand their lower exposure to the unpredictability of leverage and prevailing valuations, and on the other their active hands-on value creation and specialisation, as well as recent resilience in a difficult economic climate.

5. Enthusiasm for Secondaries flattens, but thriving ecosystem continues to offer valuable opportunities

   The RLI score for LPs’ intention to allocate to Secondaries funds reduced by 7 points to 49, suggesting a levelling off in overall Secondaries deployment as investors turn their attentions once more to primary deployment. Meanwhile, the RLI score for intention to allocate to GP-led transactions also fell to 49, this time by 8 points. This potentially reflects the rise in M&A and IPO activity, offering greater exit opportunities for GPs and reducing reliance on continuation vehicles as a liquidity strategy. Nonetheless, with the exit environment remaining muted in relative terms, we are seeing the Secondaries market continue to evolve and mature, providing not just valued outlets, but now a growing variety of positive opportunities for LPs. Appetite to allocate the same or more capital to the market in coming months therefore remains healthy, with 74% of respondents still indicating that they expected to do so.