USA – MARYLAND Trends and Developments Contributed by: Michael Hardy, Joseph Machi, Nicholas Stewart and Leen Al-Alami, Duane Morris LLP
Introduction After a generally challenging 2024, the private equity ecosystem entered 2025 with measured optimism. Early signs of recovery suggested the potential for renewed momentum. However, market fundamentals remain uneven, and macro-economic and geopolitical uncertainties and market volatility continue to shape fundraising and dealmaking strategies. As the year progresses, private equity sponsors and investors are adjusting their approach with a focus on resilience, liquidity and disciplined deployment, aiming to navi - gate volatility while positioning themselves for a more stable and active second half of the year. Fundraising Private capital fundraising – whether private equity, venture capital, private credit or secondaries – faced challenges in 2024, a year in which the total global private capital raised was USD1.2 trillion, the lowest amount since 2018. Preliminary reports, however, indi - cate that fundraising may pick up this year, with the total global private capital raised in Q1 2025 exceed - ing one-quarter of the total raised in 2024. While this uptick is encouraging, it is not the full picture, and Q1 2025 results may be deceptively high, owing to the post-election optimism that fuelled the economy early in the year and the 25-basis-point decrease in the Federal Reserve rate in December 2024. Although some of the shock to the economy around tariffs may have been temporary, the overall economic outlook devolved in Q1 2025, which may negatively impact fundraising for the remainder of the year. A closer look at certain key market segments is also telling. Private equity sponsors raised USD115.5 bil - lion globally in Q1 2025, a significant drop from the USD178.8 billion raised in Q1 2024. This multi-year decline is largely attributable to macro-economic conditions. Persistent inflation precipitated a sharp increase in US interest rates from 2022 to 2023, which, in turn, cooled dealmaking, disrupted the results of portfolio companies and slowed private equity exits. Relatedly, investors became more capital constrained because of the decrease in distributions. In 2024, private equity exits rebounded and sponsor distributions exceeded capital contributions for the first time since 2015. Industry surveys conducted in
late 2024 and early 2025 indicated that a significant number of investors intended to increase their private equity allocations. However, as the results from Q1 2025 demonstrate, the anticipated increase in funding has not materialised, and declines in exit value may negatively impact fundraising throughout 2025. Many investors are now sending the message that they need returns in order to fund future vehicles. Further, many pension funds, including the Maryland State Retirement and Pension System (MSRPS), have determined to reduce their current asset overalloca - tion in private equity funds. MSRPS has targeted low - ering its exposure in private equity funds generally by a third while increasing its allocation among small and mid-market funds as well as seeking to deploy capital to emerging managers in Maryland. However, not all investors are keen on investing with emerging managers. Indeed, capital has continued to concentrate among the largest funds and most experi - enced managers. In Q1 2025, five private equity funds raised a combined USD48.2 billion, comprising 41.7% of private equity capital raised. In the private debt seg - ment, 97.5% of the capital raised was by firms that have raised four or more funds, with the ten largest funds accounting for 86.3% of all private debt com - mitments. In the face of these ongoing fundraising challenges – concentration of capital, market volatility and increas - ing liquidity pressure from investors – the private capi - tal market has adapted. • Sponsors have established and deployed vehicles to meet the moment, such as hybrid funds, which, unlike traditional closed-ended vehicles, provide increased liquidity by offering investors periodic redemption opportunities, and special situation funds that make concentrated bets relative to mar - ket events and disconnects. • Investors have engaged in more active investment opportunities, for instance, investing in general partners of funds. • Investors have shifted allocations of their capital to secondaries, anticipating that investments in shorter-lived assets will generate quicker returns. In Q1 2025, secondaries accounted for 15.3% of
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