Edwin Walczak

Edwin Walczak is US Equity Portfolio Manager at the Vontobel Quality Growth Boutique

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U.S. Treasury Downgrade: Same Strength, New Opportunities

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Report by McKinsey & CompanyThe latest report from McKinsey & Company, the Global Private Markets Review 2025, reveals that raising capital continues to be a challenge, resulting in a 24% reduction in new commitments globally to $589 billion in 2024—marking the third consecutive year of decline. Nevertheless, distributions to LPs surpassed capital contributions for the first time since 2015, providing much-needed relief to investors during a pivotal moment for sector liquidity. However, global investment in Private Equity reached $2 trillion in 2024, recording a 14% increase after two years of decline. This rebound was driven by a notable rise in both the number and value of large transactions, primarily under buyout strategies, amid more favorable financing conditions. Moreover, entry multiples approached levels seen in 2021 and 2022, reflecting increased investor confidence in the potential for asset appreciation. Greater Focus on Value Creation The 2024 investment landscape was marked by higher entry multiples and longer holding periods, intensifying pressure on Private Equity funds to generate value through more active strategies focused on operational and revenue enhancements in their portfolio companies. In this context, add-on mergers and acquisitions accounted for 40% of total private equity deal value, consolidating their position as a key driver of returns. Debt costs improved gradually, leading to a rise in the value of new credit issuances for private equity-backed companies. However, global dry powder declined by 11% in the first half of 2024, standing at $2.1 trillion, reducing the inventory to 1.89 years. Tomeu Palmer, Partner at McKinsey and Leader of the Private Equity & Principal Investors practice in Iberia, states: “For private equity managers, focusing on value creation through operational and growth levers has never been more important. Entry multiples have reached historical highs and holding periods are longer, making operational optimization and growth essential for delivering strong returns.” New Dynamics in the Secondary Market The secondary market has become a significant additional liquidity source for LPs, with a 45% increase in transaction value. This growth has fueled LP interest in seeking liquidity beyond distributions, as well as in GP-led secondaries through the creation of continuation vehicles as a strategy for portfolio management. In total, secondary transactions reached $162 billion—the highest level on record. Meanwhile, middle-market funds were the only ones to maintain stable fundraising levels amid widespread declines. Large funds failed to grow for the first time in three years, while smaller and newly launched funds faced greater challenges, with longer fundraising periods and lower volumes. Nonetheless, LP confidence in the Private Equity segment remains strong, with 30% planning to increase their allocation to private equity over the next 12 months, according to McKinsey's global LP survey. “The secondary market has gained unprecedented relevance, reaching a record-breaking transaction volume of $162 billion. More than half of this total was driven by LP-led transactions, showing that investors have found this mechanism to be an efficient way to reallocate capital and manage liquidity. Moreover, the GP-led segment also reached record figures, with 84% of these funds channeled through continuation vehicles,” says Joseba Eceiza, Senior Partner at McKinsey and Leader of the Private Equity & Principal Investors practice in Iberia. Private Equity in Spain: Investor Confidence on the Rise Regarding the evolution of the Private Equity market in Spain, Joseba Eceiza highlights that “Spain has shown remarkable ability to attract investments despite global economic challenges, reflecting investor confidence in the country's stability and growth potential. Spain continues to consolidate its role as a key private equity market, with record fundraising, strong foreign investment, and growth in strategic sectors such as technology, agribusiness, tourism, and digital infrastructure.” International investors played a crucial role in this recovery, accounting for 73.5% of total investment in Spain, contributing €4.808 billion. This dominance of foreign funds aligns with the global rise in Public to Private (P2P) transactions, which grew by 65% in Europe, according to the same report. “International investors' confidence in the Spanish market is a vote of confidence in the economy and the investment opportunities it offers,” adds Eceiza. The technology sector led Private Equity investment in Spain, capturing 36% of capital, reflecting a global trend of increased investment in technology and financial services—with transaction value increases of 51% and 110%, respectively. In addition, the hotel and tourism sector experienced notable growth, with €3.3 billion in hotel investment, making Spain the second-largest market in Europe after the UK. “The combination of a booming tech sector and robust tourism is driving Private Equity growth in Spain, attracting both domestic and international investors,” explains Eceiza. Divestments and exits also showed significant growth, rising 113% to €2.902 billion in 2024, in line with the global 7.6% increase in exits. “Successful exits are fundamental to the Private Equity investment cycle, and the rise in such operations indicates greater liquidity and confidence in the market,” says Tomeu Palmer. In the infrastructure space, Spain is at the forefront of the data center market expansion, with expectations to attract more than €20 billion in investment over the next five years. This growth follows the global trend toward digitalization and technological infrastructure. “Investment in data centers is a clear indicator of Spain's commitment to digitalization and innovation, which will attract more foreign capital in the future,” affirms Palmer. GPMR Report Highlights Global fundraising fell 24% to $589 billion, marking the third consecutive year of decline. Transaction activity rebounded 14% to $2 trillion, the third-highest figure ever recorded in the sector. For the first time since 2015, investor distributions exceeded capital contributions, easing liquidity pressures. Buyouts led fundraising and achieved the highest IRR in 2024, with an increase in deals exceeding $500 million. Venture capital saw a decline in deal count and volume, reflecting lower dynamism in the segment. Growth equity remained relatively stable but was affected by investor caution and stricter debt conditions. The financing environment improved, with lower costs and increased issuance value for new private equity-backed debt. Global dry powder fell 11% in H1 2024 to $2.1 trillion, reducing inventory to 1.89 years. A global LP survey revealed that 30% plan to increase their private equity allocation in the next 12 months. Large-scale transactions (+$500M) grew 37% in value and 3% in number, highlighting a preference for larger deals. The rise of the secondary market and increase in exits among financial sponsors reflect greater sophistication in portfolio and liquidity management strategies.