Forging Confidence: Top Takeaways from IPEM Paris 2024

Over 2,000 firms, including 1,300 LPs and 800 GPs, from around the world descended on the historic Palais des Congres in Paris at this month’s 2024 IPEM conference. This was the second time the event, one of the world’s largest gatherings of private capital decision makers, was being held in the French capital. This year’s theme was ‘Forging Confidence,’ and sessions focused on the relationship between GPs and LPs in a market environment of higher interest rates, decreased exit activity and increased liquidity innovations. So, what were the great and the good of global private markets spilling the proverbial tea on this year? Here are our four key takeaways.

DPI is the new IRR

Following a period of higher interest rates, muted M&A activity largely driven by add-ons with only ‘superstar’ assets able to exit, and an IPO market that is all but closed, LPs are hungry for distributions. In the week since IPEM wrapped, the US Federal Reserve announced its first rate cut since the pandemic, marking a shift in the interest rate dynamic with implications for borrowing costs, valuations and sentiment.

That said, LPs are calling for cash now, and many GPs are prioritizing returning liquidity or ‘distributions’ to their investors. Chatter across the keynote sessions and on the conference floor was that IRR (Internal Rate of Return) is no longer the primary metric and DPI (Distributed to Paid-in Capital) is king, reflecting the importance of ‘real’ cash returns, transparency and investor satisfaction. With less exits to point to as a measure of success, private equity firms must identify and communicate on other indicators, including DPI, to build and retain advocacy in the market with LPs.

Super Secondaries

Secondaries have always had an important role in the private capital ecosystem. But the wider market environment paired with the distribution-hungry (more like, ravenous) LP community, means the opportunity set for secondaries strategies, from LP stakes to GP stakes to Continuation Vehicles, is robust. There was a lot of talk on how secondaries can help narrow the liquidity gap in addition to enabling investors to capture value, through holding onto a star asset for longer to maximise upside or enabling other players’ access to a high-performing single asset or portfolio.

Despite excitement towards this particular industry bright spot, the importance of underlying asset strength was repeatedly emphasized, and the onus will be on the GPs to communicate how they identify compelling value in the market. The use of technology and AI innovations are set to be pivotal for understanding underlying company and portfolio health for investors in these strategies.

We need to talk (said LPs)

A key takeaway from the conference was that LPs are feeling good about deployment to the asset class. An audience poll conducted among LPs at IPEM suggests that 37% of LPs plan to “slightly increase” their allocation to PE over the next two years, while 24% plan to “significantly increase,” with mid-market growth and buyout and secondaries strategies especially popular.

But transparency and robust communication between LPs and GPs are critical – and LPs want more of it. When it comes to future capital commitments, LPs at the conference said transparent communication and reporting from GPs are key to deployment decisions. These factors, in addition to a team’s performance and overall alignment with the value creation strategy, are must-haves for creating and reinforcing confidence with this group.

Credit ain’t cooling

Private credit has seen significant growth and institutionalization in recent years, which has cemented its position as a standalone allocation option within the asset class. With looming maturity walls calling for refinancing in a higher-interest rate environment, and banks back on the scene, the landscape and opportunity set is evolving.

IPEM panelists discussed private credit’s “long runway,” and the now-systemic need for the bespoke, efficient and longer-term approach of private credit financing solutions, with especially strong demand across the middle and upper-middle-market segments. However, greater performance dispersion is expected, as it becomes clear which managers have the capacity, resources and expertise to support companies seeking refinancing in the era of the maturity wall. Looking ahead, it will be increasingly important for private credit firms to ensure that the market understands their strategy and why it is well positioned in an increasingly competitive environment.

The next IPEM edition will be taking place from the 28-30 January 2025 in Cannes, France. The conference will cover the private capital ecosystem with, for the first time, a particular focus on the wealth channels. Please reach out to pro-ipem@prosek.com if you would like to find out more.