Rising interest rates in the first half of the year complicated private equity deal economics, forcing investors to increase their equity contributions as traditional funding sources became increasingly difficult to secure. This led to a divergence in valuation expectations that ultimately impacted both dealmaking and fundraising activity.
The value of global private equity transactions fell 35% to $474 billion in 2023 – its lowest level in five years. In parallel, private equity and venture capital fundraising fell by 12%, as the slowdown in recycled capital meant investors were less able to maintain or increase their allocations.
The market dislocation presented an opportunity for providers of private credit to fill the gap left by traditional lenders. Private financing accounted for more than 80% of the debt used in leveraged buyouts during 2023 – an all-time high. The outlook for private credit also remains attractive, with funds having accumulated an estimated $1 trillion of dry powder that will provide investors with greater choice and flexibility in how they finance transactions.
Meanwhile, demand for structured products and secondaries also increased as private equity managers sought alternative capital solutions and routes to exit mature investments.
Against this backdrop, ADIA’s Private Equities Department (PED) was able to target attractive investment opportunities across the capital structure. These included anchoring investments in “platform” opportunities such as Jefferies Credit Partners’ Direct Lending BDC, and Overland Advisors, a partnership between Centerbridge and Wells Fargo focused on non sponsored middle market direct lending.
Additionally, the Department continued to support partners through capital solutions in the form of structured minority investments, and to facilitate fund-to-fund transactions where new value creation and growth opportunities could be underwritten.
PED's commitment of new capital in 2023 skewed more to direct investments relative to funds, driven by increasing participation in large take-private transactions. Its allocation to platform opportunities also increased as a percentage of the total, while secondaries remained a key theme. Overall, the Department completed more than 20 direct investments of more than $150 million, across its core areas of specialisation, broadly in line with 2022. In addition, it deployed add-on capital to existing portfolio companies to capitalise on opportunities including acquisition-led growth.
In terms of sectors, a decline in technology valuations globally provided attractive opportunities in 2023. PED made significant minority investments in the take-private of Cvent, a leading provider of event management software, as well as in TeamSystem, an accounting and business management software business. The Department will continue to seek opportunities in high-quality software and tech-enabled businesses with attractive relative valuations.
In financials, PED invested in Corient, a leading U.S. wealth management business and acquired a stake in Fullsteam in partnership with founding sponsor Aquiline, in a deal that intersected payments, financial technology and software for small and medium-sized businesses.
Healthcare remained a key area of focus in 2023, as PED announced an investment into the take-private of Dechra, providing access to both specialty pharmaceuticals and companion animal health. It also targeted other opportunities in the broader healthcare value chain including biotechnology, manufacturing, and services.
In industrials, the Department invested alongside Advent International in Austria’s INNIO, an energy solution and service provider, and partnered with Apollo in the take-private of Univar Solutions, a leading global chemical distributor, to enhance its flexibility and growth trajectory.
While the global Consumer sector continued to experience macro headwinds, PED was able to capitalise on opportunities in India where growth remains robust. It acquired a stake in Lenskart and made a follow-on investment in Reliance Retail, both market-leading businesses that are benefiting from increasing consumption and digitalisation trends.
Looking ahead, PED is actively tracking evolving trends in the broader investment landscape, including the evolution of capital solutions and products, the proliferation of artificial intelligence, digitalisation, and energy transition, among others. PED will continue to leverage its internal expertise and relationships with partners to invest flexibly across capital structures, in pursuit of the most attractive risk/return opportunities at scale.
