Pitchbook's US Outlook 2024

Tracey Alper our consultant managing the role

Trends in the US investment market 

As we enter 2024, the tone of pessimism that characterised the economic outlook for the previous year has shifted to one of renewed confidence. The concerns about a potential economic downturn seem to have eased, with many now believing that the US is heading towards a soft landing. Despite interest rates remaining elevated, there is a sense in the market that this high-rate environment will not last much longer.
Positive economic indicators are starting to emerge, giving further credence to the belief that the worst may be behind us. As businesses continue to adapt and innovate in response to changing conditions, there is a growing sense of optimism about the future. This renewed confidence is reflected in market expectations, which are increasingly pointing towards a more positive economic trajectory in the coming months.
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While challenges remain, it appears that the worst may be over and that brighter days are ahead. As we move forward into 2024, there is a sense of cautious optimism about the economic outlook and the potential for growth and stability in the months to come.
We have reviewed Pitchbook’s latest US market overview, to help our clients and candidates make sense of the current direction of travel. 

Private market sentiment 

Recent GDP figures suggest that the economy is on track for a soft landing, which is good news for the private markets. This positive trend could bring hope to investors and potentially lead to an increase in deal activity. With the uncertainty of a downturn removed, there may be more confidence in making investments and pursuing opportunities. The engineering of a soft landing could provide stability and a favourable environment for growth in the private markets. This could be a promising sign for the future of the economy and could lead to increased activity in the deal-making space.

The impact of inflation on investors 

The increase in rates has had an interesting impact on investors. With rates rising, allocators may feel less pressure to seek out higher-risk assets to meet their return targets. While this may provide some relief for those looking to play it safe, it could have a negative effect on flows into venture capital (VC) and high-yield debt investments. 

VC investments and high-yield debt are typically considered higher risk, higher reward options, and may not be as attractive to investors when safer options are available. This shift in investor behaviour could potentially impact the flow of funds into these areas, leading to a decrease in investment in VC and high-yield debt. Ultimately, the impact of the increase in rates on these sectors will depend on how investors react and adjust their strategies moving forward.

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The impact of inflation on consumers

The lack of widespread faith in an economic recovery is understandable given the current state of consumer and business confidence. With levels remaining below their 30-year median, concerns have persisted since 2020.
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Inflationary pressures in the US have indeed relaxed considerably, which is a positive sign for the economy. However, despite this improvement, CPI figures are still above the Fed's target of 2%. This indicates that there is still some work to be done to ensure stable economic conditions. It is interesting to note that the Fed has held rates steady for three consecutive meetings, signalling a cautious approach to monetary policy. 
The possibility of three rate cuts in 2024 shows that the Fed is prepared to act if necessary to support economic growth and stability. Overall, while there are still challenges ahead, these recent developments suggest that the Fed is closely monitoring the situation and is ready to respond appropriately to address any potential risks.

Unemployment 

One indicator that has persistently resisted signs of recession has been jobs. While some industries have been announcing cuts, the US unemployment rate has remained surprisingly low, tempering the pain of rising rates and inflation. This resilience in the job market is a positive sign for the overall economy, as it indicates that there is still demand for labour and businesses are still hiring. 

A low unemployment rate also means that more people have stable income, which can help to mitigate the impact of rising prices on consumer spending. Additionally, when people are employed, they are more likely to make big-ticket purchases like cars and homes, which can help to stimulate economic growth. Overall, the stability of the job market is a crucial factor in preventing a full-blown recession and maintaining economic stability.

What does this mean for the US private equity and VC market 

The Pitchbook PE Barometer is a factor-based framework that estimates PE fund returns based on key economic and market variables. Historically, it has tracked actual returns reasonably well. However, from late 2020 through 2021, PE fund returns were considerably higher than the implied returns from the PE Barometer. This performance gap reversed in early 2022 as fund managers gradually marked their valuations to market.

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Since the anomalous years of 2020 and 2021, VC has fallen back as other strategies like private debt, natural resources, and infrastructure—traditionally laggards—recently landed in the top half.

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What does this mean for CFO’s looking for their next opportunity in a US investor-led business? 

It is clear from Pitchbook’s report that PE firms have kept buying, building, and selling despite the tough lending environment. The macro trends that we are seeing in Europe are also translating to the US market, albeit on a larger scale.

Find your next investor-led CFO or Executive Finance role with Marks Sattin Executive Search

At Marks Sattin Executive Search, we work with a wide range of investor-led and privately owned businesses across all sectors and locations. With over 30 years of experience, we have helped more than several professionals find their next exciting opportunity.

Apply for an available CFO or Executive Finance job with us today or register your details and we will contact you at the earliest convenience.

29/02/24
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