GPs prepare for more competitive debt market
More than half (54 per cent) of GPs expect to have new lenders to work with in 2025, as a more competitive debt market improves borrowing conditions.
According to a new report from Investec, this represents a marked shift from last year, when 56 per cent of GPs expected to see a contraction in new lender activity.
This year, the majority of UK managers said that they expect to see either narrowing margins or the relaxation of documentary controls. However, outside of the UK, only 35 per cent of GPs have forecast looser terms.
Investec’s 14th Private Equity Trends 2025 Report also revealed that private equity professionals are expecting rising returns and larger fund sizes in 2025.
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More than three quarters (79 per cent) of GPs expect deal returns to rise in 2025, compared to just 24 per cent in 2024.
Furthermore, 38 per cent of respondents anticipate their next fund will be an increase of 25 per cent or more.
“This year’s findings serve as a distinctive barometer for GP sentiment going into what will be a crucial year for the industry,” said Jonathan Harvey, fund solutions, Investec.
“Despite challenges over the past few years, the industry is resilient, adaptable, and anticipates a more favourable period ahead. Our research indicates that positive sentiment is significantly up across the industry, with expectations of higher returns and larger fund sizes.
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“This suggests that the dry powder accumulated over the last few years may be deployed into the market this year.”
The report found that despite optimism in the private debt market, lenders continue to exercise discipline. 43 per cent of respondents reported that leverage multiples have lowered from a year ago. While interest rates have reduced, the overall cost of borrowing remains elevated compared to recent years, making additional leverage more costly to service. While debt remains available, the survey found that capital structures remain relatively conservative.
“While sentiment is clearly up and expectations for a positive deal environment are high, it is evident that headwinds remain,” added Harvey.
“We are likely to see a pickier market as deals come under increased scrutiny, with dealmakers needing to navigate heightened levels of both geopolitical and macroeconomic challenges throughout the year.”
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