- Private equity
- Papers
- Perspectives
Paul Newsome
Head of Investment Solutions
Private Equity
- Despite geopolitical volatility, LP’s allocation plans to private equity remain robust – for now
- We remain focused on the factors that have enabled us to achieve attractive exits and will seek opportunities in any dislocation
- There are compelling arguments for investing in emerging managers today, while evergreen funds are providing an attractive route for those dipping a toe into private equity investing
Overview
The start of 2025 has proved something of a rollercoaster ride for investors. Having risen following President Trump’s re-election and subsequent inauguration, public markets had already begun to retreat in February and March, prior to the spike in volatility and sharp declines triggered by the announcement of sweeping tariffs on 2 April.
While the majority of planned tariffs were temporarily reversed, the escalation of trade tensions, particularly with China, will have significant implications for both public and private companies. Any increase in tariffs on goods imported into the US – as well as retaliatory tariffs on US goods imported into other countries – may disrupt supply chains and compress margins across affected sectors. There are also indirect consequences such as inflation, rising financing costs, decreasing consumer spending and reduced M&A activity – all of which may prove even more impactful over time. Despite this increase in geopolitical uncertainty, LPs’ allocation plans towards private equity remain encouragingly robust – for now.
Through this volatility and uncertainty, we remain focused on the characteristics that have enabled us to buck market trends and consistently achieve attractive exits ahead of those achieved by many peers. At the same time, we believe these market dislocations will create attractive investment opportunities. We anticipate lower entry valuations and an increase in secondary deal flow both in funds and directly in assets, as some investors will need to pro-actively seek liquidity. In this update, we highlight how emerging managers can provide attractive returns with less risk across the cycle than conventional wisdom might suggest. In addition, we look at evergreen structures and why they are proving increasingly attractive.
Uncertainty brings caution
Deal making in the first quarter of 2025 did not have the momentum many had predicted at the end of 2024. Globally, private equity investment activity1 in the first quarter of 2025 totaled USD 151bn in aggregate, down 6% on the USD 161bn achieved in Q4 2024 and flat versus the first quarter of 2024.
This is a similar pattern to the past two years, when activity has been relatively subdued in the first quarter of the year, picking up as the year progresses. The jury is out as to whether the same will be true this year, given the continued uncertainty in financial markets. Europe was hit hardest, with aggregate deal value falling 50% over the quarter and 57% compared with Q1 2024. Investment activity in the Asia Pacific declined by 22%, while the US registered a 22% increase.
Exits fell to their lowest level since the first quarter of 2023, with exit deal value2 totalling just USD 77bn. This is 30% lower than the USD 111bn recorded in Q4 2024 and 16% below the USD 92bn achieved in the same period last year. As in previous periods, trade sales and secondary buyouts accounted for the majority of activity.
The decline was largely a result of much lower activity in North America, where aggregate exit values were 45% lower than the previous quarter – totalling USD 43bn. However, the number of deals fell by just 17% over the quarter, indicating that exit activity is being hit hardest at the large end of the market.
Exits in Asia Pacific declined at a less steep rate, falling 14% quarter on quarter to USD 9bn. Europe, however, bucked the trend with an 15% increase in deal value from USD 22bn to USD 26bn, although the actual number of deals declined 24%.
The continued low level of exits is not only having an impact on regular distributions but also on the average age of fully liquidated funds. Research3 indicates that less than only one in five investors see their funds liquidate within the 10-year target lifespan for most private equity funds. The majority wait 13 or more years for liquidation while around one in seven investors wait 15 years or longer.
Fundraising in the first quarter totalled USD 42bn4, with 81 funds executing final closes globally. However, the largest funds continued to dominate, with the top 10 accounting for 65% of total assets raised.
Figure 1: Global Exits Aggregate Deal Value (USD bn)
Source: Preqin
Back to basics
In the volatile market conditions we are seeing today, our focus remains on employing our thematic investment approach, and emphasising high-quality businesses, which we believe offer a degree of downside protection against market gyrations. We prioritise structural tailwinds such as the localisation of supply chains and “asset-light” or service-based business models, which tend to be more resilient to tariff-related disruptions and less exposed to cycle-risk.
Our diversified portfolio of “leaders of tomorrow” includes businesses that provide mission-critical products and services, often with strong pricing power. These companies typically exhibit recurring revenues, robust growth, high EBITDA margins and healthy cash flows. Additionally, we have strategically overweighted sectors we consider more defensive, such as Healthcare, B2B Software and Services, and Education. These qualities have been clearly visible in our investment and exit activity during the first quarter.
In March, for example, we agreed to sell our investment in Micronics to Cleanova – a portfolio company owned by PX3 Partners. This acquisition will create one of the largest independent industrial filtration businesses in the world, with an enterprise value of USD 1.3bn. Cleanova, which is based in Ireland, is a leading global manufacturer of consumable, mission-critical, and engineered industrial filtration systems. Micronics, based in the USA, is a leading global manufacturer of filter media and industrial filtration systems, and provider of a broad range of expert field services, delivering customised air and liquid filtration solutions to meet demanding requirements across a variety of industrial applications. The two companies are highly complementary across markets, geographies, and products. Importantly, each company has localised supply chains, addressing mainly a domestic or regional customer base. Given our existing relationship with PX3 Partners through our emerging manager program, we have taken the opportunity to make a new direct investment in Cleanova.
In addition, we completed an investment into US-based VION Biosciences, alongside Iron Path Capital during the quarter. VION Biosciences is positioned to become a leading life science company providing both mission-critical chemicals and specialty reagents alongside value-added services, which enable scientific discovery, clinical testing, therapeutic development, and innovative solutions across a wide platform of key applications from research to commercialisation. Formed via the merger of three companies, the business offers a mix of products and services to customers such as Quest Diagnostics, Mayo Clinic, Thermo Fisher, and Labcorp. This investment will help support the acquisition of the fourth add-on, BioAssay.
We are applying a rigorous bottom-up analysis to understand the impact of tariffs and related factors (e.g. FX movements, interest rate shifts, supply chain changes and softening demand) on both individual companies and our portfolios as a whole.
Tackling the emerging manager myths
Given the current uncertainty, you might think that investing in emerging managers is a risk not worth taking. However, in our 30-years of experience investing in this segment, we have found the opposite to be true.
Emerging managers, those who are launching their first or second funds, are often perceived as risky due to their limited track record as a team, smaller AUM and lack of institutional backing. However, these perceptions are often rooted in myth, not reality. Instead of relying on preconceived notions, investors should assess both hard facts, such as performance data and strategy, and soft factors like team experience, agility, ability to innovate and alignment of interests.
While risks do exist – like with any private equity investment – so do significant opportunities, often ones that cannot be accessed through larger, established managers. And the reality is that emerging managers outperform established managers with the same level of risk – even more so if you know which ones to back.
During the past three decades we have learned how to take most of the risk of investing in emerging managers off the table. Rather than inexperienced newcomers, we focus on investing with emerging managers who are actually seasoned private equity professionals with 15-20 years of industry experience. They are only ‘emerging’ managers because they have decided to establish their own firms. Their deep expertise and proven track records make them well-equipped to launch and manage successful investment vehicles, which often focus on specific sectors where they have accumulated significant experience.
In addition, emerging managers create value differently and rely less on leverage and multiple arbitrage than established managers. They also typically invest significant amounts of their own money, meaning their wealth is heavily concentrated in the fund’s success, creating a powerful alignment of interests with their limited partners.
Perhaps most importantly, general partners never forget their first investors. This goodwill translates into tangible benefits throughout the relationship, from increased transparency and communication to preferential treatment in capacity-constrained situations such as co-investments. The loyalty factor shouldn’t be underestimated – managers often go to extraordinary lengths to ensure their early supporters are well-served, even as their platform grows and attracts larger institutional investors.
So, rather than presenting too much risk, investing in emerging managers provides not only a compelling investment opportunity but also a strategic advantage in securing future opportunities and establishing partnerships for the long term.
Evergreen funds: removing the barriers to private equity investing
For certain investors, investing in private equity has traditionally been seen as daunting, particularly given the prospect of unpredictable liquidity for ten years or more. The recent market volatility will have done little to assuage those concerns.
However, in recent years, the private equity sector has started to address these issues, introducing ‘evergreen’ structures that solve the operational and administrative complexity of closed-ended funds. Many of these evergreen structures have far lower minimum investment levels – sometimes as low as EUR 100,000 – and unlike traditional private equity structures, all the capital is called at inception, so investors don’t have to worry about managing calls and distributions. In addition, evergreen structures typically have the benefit of providing the option of quarterly or monthly partial liquidity.
Diversification is important in these vehicles, but we believe there is a risk that many evergreen funds are becoming far too over-diversified to deliver the requisite outperformance versus public equities. Some of them contain exposures to thousands of underlying companies, not to mention other private asset strategies such as private debt and infrastructure. For investors seeking exposure to private equity only, we believe that a portfolio of mid-market secondaries (LP stakes and GP-led deals) and directs can give access to market leading companies, stable double-digit returns and attractive downside protection.
We have been managing evergreen vehicles for 25 years and have a proven track record of constructing well performing evergreen portfolios, by investing in only the highest quality companies, utilising the compounding effect of secondaries, anticipating liquidity needs and minimising cash drag. Evergreen funds are not for all investors but can be an attractive alternative for smaller investors seeking a simpler way of accessing private equity or institutional investors looking to complement their longer-term private equity exposure.
Unigestion Private Equity Activity
Here are the highlights of some of the investments that we completed in Q1
In January, Unigestion completed an investment in Investcorp India Growth III. In 2019, Investcorp acquired the private equity and real estate business of IDFC Group, forming Investcorp India Asset Manager. The India team further refined its investment strategy to focus on significant minority to buyout investments in the mid-market segment in India. The fund invests across four core sectors of consumer, healthcare, financial services and software and business services underpinned by thematic megatrends such as increasing healthcare requirement, acceleration of omnichannel consumer behaviours, digital enablement of enterprises etc, targeting 10 to 12 investments with enterprise value of USD 150m to 500m and equity size of USD 25m to 50m. The fund already consists of four investments and the portfolio is expected to be written up soon.
In the same month, Unigestion completed an investment in Notion Capital Opportunities III. Notion is a UK-based venture capital fund manager founded in 2009, primarily focusing on business software and fintech. While its core venture strategy targets the early-stage segment, Notion has expanded its scope with its Opportunities Fund strategy, which aims to provide follow-on growth capital to the best-performing companies from its earlier-stage venture funds. The firm’s Opportunities Fund III is targeting EUR 125m in commitments, to be deployed across 10 to 12 investments, with a sweet spot at Series C.
In February, Unigestion completed an investment into VION Biosciences, alongside Iron Path Capital. VION Biosciences is positioned to become a leading life science company providing both mission-critical chemicals and specialty reagents alongside value-added services, which enable scientific discovery, clinical testing, therapeutic development, and innovative solutions across a wide platform of key applications from research to commercialisation. VION Biosciences is focused on expanding its domestic and global presence to build a leading specialty chemicals platform with a focus in the biopharmaceuticals and molecular diagnostics end markets through continued organic growth and via its well-developed acquisition strategy. Formed via the merger of three companies – Aldon, AnshLabs and Echelon Biosciences – the business offers a mix of products and services to customers such as Quest Diagnostics, Mayo Clinic, Thermo Fisher, and Labcorp. This funding round was completed to support the acquisition of the fourth add-on, BioAssay.
In March, Ungestion agreed to sell its investment in Micronics Engineered Filtration Group to Cleanova – a portfolio company owned by London-based private equity company PX3 Partners. The acquisition of Micronics by Cleanova will create one of the largest independent industrial filtration businesses in the world, with an enterprise value of USD 1.3bn. Cleanova, which is based in Ireland, is a leading global manufacturer of consumable, mission-critical, and engineered industrial filtration systems. As such, it helps customers ensure the reliability and efficiency of their industrial processes while protecting the environment. Micronics, based in the USA, is a leading global manufacturer of filter media, industrial filtration systems, and provider of a broad range of expert field services, delivering customised air and liquid filtration solutions to meet demanding requirements across a variety of industrial applications. The two companies are highly complementary across markets, geographies, and products. This transaction is expected to complete in the second quarter of 2025 and will generate attractive performance for investors in Unigestion Secondary V, including a significant distribution.
Also in March, Unigestion completed a direct secondary transaction in Cleanova, alongside PX3 Partners, a manager whom we have backed through our emerging managers platform. Following the agreed sale of Micronics Engineered Filtration Group to Cleanova, and given the ongoing attractive value creation potential of the combined business as a clear emerging leader in its field, Unigestion has chosen to make a new investment in Cleanova.
Important information
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