There are several shifts occurring in private equity that operating partners and PE-backed executives need to be mindful of in 2024. For example, higher interest rates have put a drag on exit outcomes, resulting in financial sponsors holding portfolio companies for longer periods. Additionally, the rise of generative AI has investors looking at new applications for digital technologies across industries.
While the primary goal of PE operators – which is to increase company earnings – hasn’t changed, we are entering a new era for value creation tactics.
Here are the five key trends in private equity portfolio operations for 2024, and the implications of each.
Extending Strategic Planning to 5-7 Years
Traditionally, PE firms operated on a 3-5 year strategic planning horizon. However, there is a noticeable shift recently towards longer holding periods. The average PE holding period is now 7.1 years, up from 5.7 years in 2022 and less than 4 years in 2000, according to S&P analysis of Preqin data. This is evident in the rise of continuation funds and secondary investments. As a result, PE operating executives are now extending their strategic planning timelines to 5-7 years.