1、Private markets:A slower eraMcKinsey Global Private Markets Review 2024March 2024Copyright 2024 McKinsey&Company.All rights reserved.This publication is not intended to be used as the basis for trading in the shares of any company or for undertaking any other complex or significant financial transac

2、tion without consulting appropriate professional advisers.No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey&Company.ContentsExecutive summary 21Private markets in 6 a slower era Fundraising 7AUM 12Performance 14Spotlight on secondari

3、es 15Spotlight on non-16 institutional capital2Private equity down 18 but not outFundraising 19AUM 23Performance 24Deal activity 263Real estate recedes 32Closed-end funds 33Open-end funds 36Deal activity 38US markets by sector 41Transforming real estate with 43 generative artificial intelligence4Pri

4、vate debt pays 44 dividendsFundraising 45AUM 47Performance 47Deal activity 48Private debts expanding footprint 495Infrastructure and natural 51 resources take a detour Fundraising 52AUM 54Performance 54Looking ahead 546Private markets make 55 measured progress in DEIRepresentation of women 57Ethnic

5、and racial representation 59The path forward 60Authors 62Further insights 62Acknowledgments 63Welcome to the 2024 edition of McKinseys annual review of private markets investing.Our ongoing research on the industrys dynamics and performance has revealed several insights,including the following trend

6、s:Macroeconomic challenges continued.If 2022 was a tale of two halves,with robust fundraising and deal activity in the first six months followed by a slowdown in the second half,then 2023 might be considered a tale of one whole.Macroeconomic headwinds persisted throughout the year,with rising financ

7、ing costs and an uncertain growth outlook taking a toll on private markets.Full-year fundraising continued to decline from 2021s lofty peak,weighed down by the“denominator effect”that persisted in part due to a less active deal market.Managers largely held onto assets to avoid selling in a lower-mul

8、tiple environment,fueling an activity-dampening cycle in which distribution-starved limited partners(LPs)reined in new commitments.Performance in most private asset classes remained below historical averages for a second consecutive year.Decade-long tailwinds from low and falling interest rates and

9、consistently expanding multiples seem to be things of the past.As private market managers look to boost performance in this new era of investing,a deeper focus on revenue growth and margin expansion will be needed now more than ever.Global fundraising contracted.Fundraising fell 22 percent across pr

10、ivate market asset classes globally to just over$1 trillion,as of year-end reported datathe lowest total since 2017.Fundraising in North America,a rare bright spot in 2022,declined 1“U.S.retirement plans recover half of 2022 losses amid no-show recession,”Pensions and Investments,February 12,2024.in

11、 line with global totals,while in Europe,fundraising proved most resilient,falling just 3 percent.In Asia,fundraising fell precipitously and now sits 72 percent below the regions 2018 peak.Despite difficult fundraising conditions,headwinds did not affect all strategies or managers equally.Private eq

12、uity(PE)buyout strategies posted their best fundraising year ever,and larger managers and vehicles also fared well,continuing the prior years trend toward greater fundraising concentration.The numerator effect persisted.Despite a marked recovery in the denominatorthe 1,000 largest US retirement fund

13、s grew 7 percent in the year ending September 2023 after falling 14 percent the prior year,1 for examplemany LPs remain overexposed to private markets relative to their target allocations.LPs started 2023 overweight:according to analysis from CEM Benchmarking,average allocations across PE,infrastruc

14、ture,and real estate were at or above target allocations as of the beginning of the year.And the numerator grew throughout the year,as a lack of exits and rebounding valuations drove net asset values(NAVs)higher.While not all LPs strictly follow asset allocation targets,our analysis in partnership w

15、ith global private markets firm StepStone Group suggests that an overallocation of just one percentage point can reduce planned commitments by as much as 10 to 12 percent per year for five years or more.Despite these headwinds,recent surveys indicate that LPs remain broadly committed to private mark

16、ets.In fact,the majority plan to maintain or increase allocations over the medium to long term.Executive summary2Private markets:A slower eraDecade-long tailwinds from low and falling interest rates and consistently expanding multiples seem to be things of the past.Investors fled to known names and

17、larger funds.Fundraising concentration reached its highest level in over a decade,as investors continued to shift new commitments in favor of the largest fund managers.The 25 most successful fundraisers collected 41 percent of aggregate commitments to closed-end funds(with the top five managers acco

18、unting for nearly half that total).Closed-end fundraising totals may understate the extent of concentration in the industry overall,as the largest managers also tend to be more successful in raising non-institutional capital.While the largest funds grew even largerthe largest vehicles on record were

19、 raised in buyout,real estate,infrastructure,and private debt in 2023smaller and newer funds struggled.Fewer than 1,700 funds of less than$1 billion were closed during the year,half as many as closed in 2022 and the fewest in any year since 2012.New manager formation also fell to the lowest level si

20、nce 2012,with just 651 new firms launched in 2023.Whether recent fundraising concentration and a spate of M&A activity signals the beginning of oft-rumored consolidation in the private markets remains uncertain,as a similar pattern developed in each of the last two fundraising downturns before givin

21、g way to renewed entrepreneurialism among general partners(GPs)and commitment diversification among LPs.Compared with how things played out in the last two downturns,perhaps this movie really is different,or perhaps were watching a trilogy reusing a familiar plotline.Dry powder inventory spiked(agai

22、n).Private markets assets under management totaled$13.1 trillion as of June 30,2023,and have grown nearly 20 percent per annum since 2018.Dry powder reservesthe amount of capital committed but not yet deployedincreased to$3.7 trillion,marking the ninth consecutive year of growth.Dry powder inventory

23、the amount of capital available to GPs expressed as a multiple of annual deploymentincreased for the second consecutive year in PE,as new commitments continued to outpace deal activity.Inventory sat at 1.6 years in 2023,up markedly from the 0.9 years recorded at the end of 2021 but still within the

24、historical range.NAV grew as well,largely driven by the reluctance of managers to exit positions and crystallize returns in a depressed multiple environment.3Private markets:A slower eraPrivate equity strategies diverged.Buyout and venture capital,the two largest PE sub-asset classes,charted wildly

25、different courses over the past 18 months.Buyout notched its highest fund-raising year ever in 2023,and its performance improved,with funds posting a(still paltry)5 percent net internal rate of return through September 30.And although buyout deal volumes declined by 19 percent,2023 was still the thi

26、rd-most-active year on record.In contrast,venture capital(VC)fundraising declined by nearly 60 percent,equaling its lowest total since 2015,and deal volume fell by 36 percent to the lowest level since 2019.VC funds returned 3 percent through September,posting negative returns for seven consecutive q

27、uarters.VC was the fastest-growingas well as the highest-performingPE strategy by a significant margin from 2010 to 2022,but investors appear to be reevaluating their approach in the current environment.Private equity entry multiples contracted.PE buyout entry multiples declined by roughly one turn

28、from 11.9 to 11.0 times EBITDA,slightly outpacing the decline in public market multiples(down from 12.1 to 11.3 times EBITDA),through the first nine months of 2023.For nearly a decade leading up to 2022,managers consistently sold assets into a higher-multiple environment than that in which they had

29、bought those assets,providing a substantial performance tailwind for the industry.Nowhere has this been truer than in technology.After experiencing more than eight turns of multiple expansion from 2009 to 2021(the most of any sector),technology multiples have declined by nearly three turns in the pa

30、st two years,50 percent more than in any other sector.Overall,roughly two-thirds of the total return for buyout deals that were entered in 2010 or later and exited in 2021 or before can be attributed to market multiple expansion and leverage.Now,with falling multiples and higher financing costs,reve

31、nue growth and margin expansion are taking center stage for GPs.Real estate receded.Demand uncertainty,slowing rent growth,and elevated financing costs drove cap rates higher and made price discovery challenging,all of which weighed on deal volume,fundraising,and investment performance.Global closed

32、-end fundraising declined 34 percent year over year,and funds returned 4 percent in the first nine months of the year,losing money for the first time since the 200708 global financial crisis.Capital shifted away from core and core-plus strategies as investors sought liquidity via redemptions in open

33、-end vehicles,from which net outflows reached their highest level in at least two decades.Opportunistic strategies benefited from this shift,with investors focusing on capital appreciation over income gener-a tion in a market where alternative sources of yield have grown more attractive.Rising inter

34、est rates widened bidask spreads and impaired deal volume across food groups,including in what were formerly hot sectors:multifamily and industrial.About this reportMcKinsey is the leading adviser to private markets firms,including private equity,real estate,private debt,and infrastructure firms,wit

35、h a global practice substantially larger than any other firm.We are also the leading consultant partner to the institutional investors that allocate capital to private markets,such as pensions,insurance companies,sovereign wealth funds,endowments,foundations,and family offices.This is the 2024 editi

36、on of our annual review of private markets.1 To produce it,we have developed new analyses drawn from our long-running research on private markets,based on the industrys leading sources of data and in conjunction with StepStone Group and CEM Benchmarking.2 We have also gathered insights from our coll

37、eagues around the world who work closely with the worlds leading GPs and LPs.We welcome your questions and suggestions at .1 We define private markets as closed-end funds investing in private equity,real estate,private debt,infrastructure,or natural resources,as well as related secondaries and funds

38、 of funds.We exclude hedge funds and,except where otherwise noted,publicly traded or open-end funds.2 All data for 2023 figures is based on reported numbers and will likely adjust as more figures continue to be reported.Performance data is as of September 30 for vintages 20002020,unless otherwise no

39、ted;AUM data is as of June 30;and fundraising data cover the full year 2023.All data for Asia excludes Australia and New Zealand unless otherwise noted.4Private markets:A slower eraPrivate debt pays dividends.Debt again proved to be the most resilient private asset class against a turbulent market b

40、ackdrop.Fundraising declined just 13 percent,largely driven by lower commitments to direct lending strategies,for which a slower PE deal environment has made capital deployment challenging.The asset class also posted the highest returns among all private asset classes through September 30.Many priva

41、te debt securities are tied to floating rates,which enhance returns in a rising-rate environment.Thus far,managers appear to have successfully navigated the rising incidence of default and distress exhibited across the broader leveraged lending market.Although direct lending deal volume declined fro

42、m 2022,private lenders financed an all-time high 59 percent of leveraged buyout transactions last year and are now expanding into additional strategies to drive the next era of growth.Infrastructure took a detour.After several years of robust growth and strong performance,infra-structure and natural

43、 resources fundraising declined by 53 percent to the lowest total since 2013.Supply-side timing is partially to blame:five of the seven largest infrastructure managers closed a flagship vehicle in 2021 or 2022,and none of those five held a final close last year.As in real estate,investors shied away

44、 from core and core-plus investments in a higher-yield environment.Yet there are reasons to believe infrastructures growth will bounce back.Limited partners(LPs)surveyed by McKinsey remain bullish on their deployment to the asset class,and at least a dozen vehicles targeting more than$10 billion wer

45、e actively fundraising as of the end of 2023.Multiple recent acquisitions of large infrastructure GPs by global multi-asset-class managers also indicate market wide conviction in the asset classs potential.Private markets still have work to do on diversity.Private markets firms are slowly improving

46、their representation of females(up two percentage points over the prior year)and ethnic and racial minorities(up one percentage point).On some diversity metrics,including entry-level represen tation of women,private markets now compare favorably with corpo-rate America.Yet broad-based parity remains

47、 elusive and too slow in the making.Ethnic,racial,and gender imbalances are particularly stark across more influential investing roles and senior positions.In fact,McKinseys research reveals that,at the current pace,it would take several decades for private markets firms to reach gender parity at se

48、nior levels.Increasing representation across all levels will require managers to take fresh approaches to hiring,retention,and promotion.Artificial intelligence generating excitement.The transformative potential of generative AI was perhaps 2023s hottest topic(beyond Taylor Swift).Private markets pl

49、ayers are excited about the potential for the technology to optimize their approach to thesis generation,deal sourcing,investment due diligence,and portfolio performance,among other areas.While the technology is still nascent and few GPs can boast scaled implementations,pilot programs are already in

50、 flight across the industry,particularly within portfolio companies.Adoption seems nearly certain to accelerate throughout 2024.5Private markets:A slower eraIf private markets investors entered 2023 hoping for a return to the heady days of 2021,they likely left the year disappointed.Many of the head

51、winds that emerged in the latter half of 2022 persisted throughout the year,pressuring fundraising,dealmaking,and performance.Inflation moderated somewhat over the course of the year but remained stubbornly elevated by recent historical standards.Interest rates started high and rose higher,increasin

52、g the cost of financing.A reinvigorated public equity market recovered most of 2022s losses but did little to resolve the valuation uncertainty private market investors have faced for the past 18 months.Within private markets,the denominator effect remained in play,despite the public market recovery

53、,as the numerator continued to expand.An activity-dampening cycle emerged:higher cost of capital and lower multiples limited the ability or willingness of general partners(GPs)to exit positions;fewer exits,coupled with continuing capital calls,pushed limited partner allocations higher,thereby limiti

54、ng their ability or willingness to make new commitments.These conditions weighed on managers ability to fundraise.Based on data reported as of year-end 2023,private markets fundraising fell 22 percent from the prior year to just over$1 trillion,the largest such drop since 2009.The impact of the fund

55、raising environment was not felt equally among GPs.Continuing a trend that emerged in 2022,and consistent with prior downturns in fundraising,LPs favored larger vehicles and the scaled GPs that typically manage them.Smaller and newer managers struggled,and the number of sub$1 billion vehicles and ne

56、w firm launches each declined to its lowest level in more than a decade.Despite the decline in fundraising,private markets assets under management(AUM)continued to grow,increasing 12 percent to$13.1 trillion as of June 30,2023.2023 fundraising was still the sixth-highest annual haul on record,pushin

57、g dry powder higher,while the slowdown in deal making limited distributions.1Private markets in a slower era6Private markets:A slower eraInvestment performance across private market asset classes fell short of historical averages.Private equity(PE)got back in the black but generated the lowest annua

58、l performance in the past 15 years,excluding 2022.Closed-end real estate produced negative returns for the first time since 2009,as capitalization(cap)rates expanded across sectors and rent growth dissipated in formerly hot sectors,including multifamily and industrial.The performance of infrastructu

59、re funds was less than half of its long-term average and even further below the double-digit returns generated in 2021 and 2022.Private debt was the standout performer(if there was one),outperforming all other private asset classes and illustrating the asset classs counter-cyclical appeal.Fundraisin

60、gGlobal private markets fundraising fell 22 percent year over year to$1.0 trillion,the lowest total since 2017(Exhibit 1).Fundraising in every asset class and region declined from the prior year.Exhibit 1Note:Figures may not sum precisely because of rounding.1Excludes secondaries,funds of funds,and

61、co-investment vehicles.Reported fgures only include funds that held fnal closes in CY 2023.Source:PreqinPrivate markets fundraising fell 22 percent in 2023.McKinsey&CompanyPrivate markets fundraising,1 2023Privatemarkets688243834330411,04630222North AmericaTotal,$billion202223,$billionYoY

62、 change,%EuropeTotal,$billion202223,$billionYoY change,%AsiaTotal,$billion202223,$billionYoY change,%Rest of worldTotal,$billion202223,$billionYoY change,%GlobalTotal,$billion202223,$billionYoY change,%Private equityAsset class424835651815Real estate84493723481256534

63、Private debt321902713Infrastructureand naturalresources5538454448291537Private markets:A slower eraOn the heels of a record-setting 2022,fundraising in North America declined 22 percent in 2023(Exhibit 2).North Americafocused infrastructure and natural resources led

64、the decline,falling 41 percent,followed by closed-end real estate,down 37 percent.PE and private debt fundraising in the region proved slightly more resilient in comparison,decreasing 16 percent and 15 percent,respectively.In Europe,fundraising declined 3 percent to$243 billion.The regions apparent

65、resilience last year is somewhat illusory,as fundraising in the region fell by 24 percent the prior year and has now declined 27 percent from the record high achieved in 2021.Fundraising in North America,in comparison,fell 20 percent over the two-year period.That said,fundraising for Europe-focused

66、PE strategies was a bright spot in 2023,increasing 57 percent year over year to set a new record high for the region.Fundraising declined in all other asset classes.Fundraising in Asia declined 48 percent to$79 billion,marking a 13-year low.The paltry haul in 2023 was 72 percent below 2018s$285 bill

67、ion peak.A confluence of factorsincluding the ongoing influence of government regulations(such as asset management product regulations in 2018 and private fund regulations in 2023)that make it more difficult to raise capitalhas contributed to the multiyear fundraising decline for Asia-focused funds

68、broadly and particularly for China-focused funds.The fundraising decline was widespread across all asset classes,and fundraising in infrastructure and natural resources and PE each declined by more than 50 percent.The numerator effectMany institutional investors entered 2023 with current private mar

69、kets allocations that exceeded target allocations.This phenomenon resulted,in part,from a sharp decline in the value of investors Exhibit 2Fundraising declined in all regions.1Includes closed-end funds in private equity,real estate,private debt,natural resources,and infrastructure.Excludes secondari

70、es,funds of funds,and co-investment vehicles.Source:PreqinMcKinsey&CompanyGlobal private markets fundraising by region,1$billion202223 growth,%Total22.441.0Rest of world48.1Asia3.2Europe21.9North America20231,0461,34820211,5061,14920191,2341,12020171,005899640206026472009278201

71、57418Private markets:A slower erapublic market holdings in 2022,reducing the value of overall portfolios(the denominator)without a corresponding decline in private markets holdings(the numerator).This so-called denominator effect could be observed across asset classes:average allocations to PE,real

72、estate,and infrastructure as of the beginning of 2023 matched or exceeded average target allocations(Exhibit 3).Only allocations to private debtperhaps not coincidentally,the most resilient asset class in terms of 2023 fundraisingwere below targets at the beginning of the year.2“U.S.retirement plans

73、 recover half of 2022 losses amid no-show recession,”Pensions and Investments,February 12,2024.In 2023,the denominator recovered:the 1,000 largest US retirement funds grew 7 percent in the year ending September 2023 after falling 14 percent the prior year.2 But many LPs remained overallocated to pri

74、vate markets due to growth in the numerator,that is,the net asset value in private markets.The net asset value of global private markets increased 10 percent year over year as of June 2023.NAV growth was exacerbated by continuing capital calls and fewer exits.In 2023,capital calls exceeded distribut

75、ions by 80 percentthe largest relative difference since 2009.Exhibit 3Average allocations for private equity and real estate exceeded average target allocations in 2023.1Data as of the beginning of the year.Source:CEM BenchmarkingMcKinsey&CompanyDiference between efective and policy allocations by p

76、rivate markets asset class by year,1%202320022OverallocationUnderallocation1.51.51.00.50.00.51.0Private equityReal estateInfrastructurePrivate debt9Private markets:A slower eraEven seemingly small degrees of overallocation can have a substantial impact on future commitments for investors

77、seeking to adhere to their asset allocation targets.For example,global private markets firm StepStone Group has determined that a 1 percent overweight position in PE today could reduce investors planned commitments by as much as 12 percent annually over the next five years.This magnitude likely unde

78、rstates the true impact in todays market,as investors were largely underallocated before becoming overallocated in 2022.The analysis studied the difference in planned commitments that StepStones proprietary pacing model would suggest for a hypothetical$100 billion institutional investor with a matur

79、e PE portfolio and a 10 percent target allocation(that is,$10 billion)between three different starting points in 2024:1.At weight(10 percent current allocation,equal to the target allocation).The pacing model calls for nearly$2.7 billion in annual commitments on average over the next five years to m

80、aintain the 10 percent target.2.Overweight by one percentage point(11 percent current allocation).The pacing model calls for approximately$2.4 billion on average,or$270 million(10 percent)less per year,to return to the 10 percent target.3.Underweight by one percentage point(9 percent actual allocati

81、on).The pacing model calls for$3.1 billion on average,or$380 million (14 percent)more per year,to return to the 10 percent target.The analysis suggests that fundraising headwinds may persist for several years,in the absence of meaningful deviations from the current trajectory,and relies on two key a

82、ssumptions.The first is total portfolio(denominator)growth of 5.5 percent per year,which is in line with typical assumptions used for such modeling.The second is exit/distribution rates(which affect the size of the numerator)consistent with long-term market norms.If either 3 McKinsey GP-LP Private M

83、arkets survey,January 2024.assumption is proven to be materially incorrectthat is,if the denominator grows more quickly or the exit velocity exceeds historical averagesoverallocation pressures may subside.Though the denominator effect may weigh on short-and mid-term fundraising,the long-term outlook

84、 for capital formation remains intact as long as LPs behavior matches their stated intent.For example,in a recent McKinsey survey of over 300 LPs globally,3 43 percent of respondents said they anticipate increasing their allocations to private markets over the next three years;only 22 percent said t

85、hey expect to decrease allocations.Concentration among large managersFundraising headwinds that persisted in 2023 affected managers unequally.Fundraising grew more concentrated among large managers in 2023,continuing a trend from the prior year and consistent with the capital rotation that also emer

86、ged in prior fundraising downturns.In 2023,the top 25 fund managers amassed 41 percent of all funds raised,the most since 2008(Exhibit 4).The top ten managers alone captured 26 percent of fundraising.Not coincidentally,an outsized share of fundraising went to larger individual funds.GPs raised 36 fu

87、nds larger than$5 billion in 2023,the second most on record,including the largest fund ever in each of private debt,real estate,infrastructure,and buyouts(Exhibit 5).Smaller and newer managers struggled in this environment.Only 1,650 funds of less than$1 billion closed during the year,the fewest sin

88、ce 2012 and about half the number formed in 2022.Just 651 new firms launched last year,also the lowest such total since 2012.In what is typically an enormously entrepreneurial industry,venturing out on ones own was exceedingly difficult in 2023.After a decade of relative consistency in private marke

89、ts industry structure,fundraising in the last two years has become more concentrated.However,concentration among larger managers has 10Private markets:A slower eraExhibit 42023 had the highest concentration in fundraising in over a decade.Note:Figures may not sum precisely because of rounding.1Exclu

90、des secondaries,funds of funds,and co-investment vehicles.Source:PreqinMcKinsey&CompanyShare of private markets fundraising by year,1%200062000200220042002020222023Top 610Top 5Top 1125Top 26100Top 101250Long-tail managers2929325712251

91、32625246693773675902222202323435Exhibit 5Real estate,private debt,and infrastructure raised their largest funds on record in

92、 2023.McKinsey&CompanyLargest fund by asset class and close year,1$billion 1Excludes secondaries,funds of funds,and co-investment vehicles.2For scale purposes,the chart excludes a$98.5 billion PE fund that closed in 2018.Source:Preqin20232000200320205Private equityReal estateIn

93、frastructure and natural resourcesPrivate debt051Private markets:A slower eraoccurredand subsequently reversedin each of the last three fundraising downturns,suggesting that the current trend could be cyclical(that is,LPs favoring existing managers when shrinking total commitments)rather

94、than secular(that is,permanent consolidation of institutional fundraising).4 Due to a lag in reported data,market dynamics in the second half of 2023 are not reflected in reported AUM figures.AUM Private markets AUM totaled$13.1 trillion as of June 30,2023(Exhibit 6).4 Sponsors largely opted to hold

95、 assets rather than sell into a lower-multiple environment,resulting in lower LP distributions and growth in NAV.Fueled by depressed deal activity Exhibit 6Private markets AUM totaled$13.1 trillion.McKinsey&CompanyWeb Exhibit of Private market assets under management,H1 2023,$billionNote:Figures may

96、 not sum precisely because of rounding.1Includes turnaround,private investment in public equity,balanced,hybrid funds,and funds with unspecified strategy.Source:Preqin3,8732,7061,3712961,6931,6741,509AsiaEuropeNorth AmericaRest of world983792,3931,0031201,2941,079225135871171,047442802269

97、8937966BuyoutGrowthVenture capitalReal assetsPrivate debtRealestateOther1Infrastructure and naturalresourcesPrivate equity100%=$13.1 trillion24212Private markets:A slower eraand lower(though still robust)fundraising totals,dry powder grew to a new high of$3.7 trillion,19 percent above the

98、 prior year.Private markets AUM has grown nearly 14 percent per year since 2013 as institutional investors steadily increase allocations to private asset classes.Institutional investors typically allocate to private markets in search of higher absolute returns,which are required for some to meet the

99、ir mid-and long-term funding obligations,and to diversify their portfolios.According to CEM Benchmarking,private markets represented 27 percent of institutional portfolios at the beginning of 2023,ten percentage points above their level ten years prior(Exhibit 7).Exhibit 7Institutional investors hav

100、e steadily increased their allocations to private markets.Note:Figures may not sum precisely because of rounding.1Data as of the beginning of each year.2Includes other real assets.3Includes mortgages.Source:CEM BenchmarkingMcKinsey&CompanyInstitutional investor asset allocations,1 201423,%2016201420

101、00222023Real estatePrivate equityInfrastructure2Private credit3Multi-asset strategiesFixed incomeStocks44.23.91.03.56.46.434.644.24.01.03.66.46.334.543.74.41.13.96.96.233.943.23.22.15.46.68.530.939.83.32.76.47.810.129.942.74.21.24.47.36.433.942.64.21.65.07.36.732.542.34.02.05.2

102、7.37.132.042.13.51.85.17.07.533.044.14.01.34.67.06.332.613Private markets:A slower eraPerformancePerformance was subdued across private markets asset classes.After losing money in 2022 for the first time since the global financial crisis,PE produced a net IRR of 2.5 percent through September 30,2023

103、.Despite a marked uptick in performance over the prior year,cumulative returns over the last seven quarters remain negative.Within PE,buyouts returned 4.9 percent during the first nine months of the year,while venture capital(VC)returned 2.9 percent.As of September,buyouts had outperformed VC for se

104、ven consecutive quarters,a marked reversal from the recent past:VC had outperformed buyouts in seven of the ten years prior to 2022.Closed-end real estate funds also lost money in 2023,producing a net IRR of 3.5 percent amid slowing rent growth and cap rate expansion.The performance decline occurred

105、 across sectors,including in multifamily and industrial.These two sectors had outperformed in the prior year,which helped offset the broader decline resulting from poor performance of the office sector.Private debt produced a net IRR of 5.1 percent (6.9 percent annualized)through September 30,2023,t

106、he highest among private markets asset classes.Private debt benefited from higher interest rates and relative insulation from valuation volatility(due to its position in the capital structure),true to its reputation as a safe haven in uncertain times.Infrastructure and natural resources returned 3.4

107、 percent and 1.7 percent,well below historical median returns of 10.2 and 7.6 percent,respectively.Factors associated with the lower performance were increased interest rates,lower energy prices,and other macroeconomic headwinds.PE remains the best-performing private markets asset class over the lon

108、g run.The median net IRR for PE funds raised between 2011 and 2020 was 16.4 percent as of September 30,2023,which exceeds the top-quartile return of all other private asset classes.At the same time,the spread between top-and bottom-quartile PE funds of the above vintages was 15 percentage points,300

109、 basis points in spread more than any other asset class(Exhibit 8).Exhibit 8The performance gap between top-and bottom-quartile PE funds is wider than for other asset classes.McKinsey&CompanyWeb Exhibit of 1IRR spreads calculated for separate vintage years for 201120 and then averaged out.Median IRR

110、 was calculated by taking the average of the median IRR for funds within each vintage year.Net IRR to date through Sept 30,2023.Source:MSCI Private Capital SolutionsPerformance by asset class,median IRR and quartile spreads for 201120 vintage funds,1%Private equityPrivate debtReal estateNatural reso

111、urcesInfrastructureBottom 25%MedianTop 25%24.016.48.815.79.83.512.09.07.014.110.25.913.57.61.615.212.25.08.211.914Private markets:A slower eraSuch dispersion of fund performance within PE implies that optimal strategy and fund selection matters greatly for returns that LPs achieve in allocating to t

112、he asset class.Indeed,performance relative to the median is often the key measuring stick for teams managing private asset portfolios.Spotlight on secondaries Fundraising for secondaries strategies totaled$76 billion,up 92 percent year over year,making 2023 the second-highest year on record(Exhibit

113、9).Though the secondaries market has deepened in recent years,relative concentration among a small number of scaled players often results in annual fundraising volatility.In 2023,for instance,just three funds accounted for$47 billion of funds raised,surpassing the entire strategys fundraising haul i

114、n each of 2021 and 2022.5 Global secondary market review,Jefferies,January 2024.Secondaries funds have now raised more than$255 billion in aggregate over the last four years,nearly twice the total raised in the preceding four-year period.Backed by several years of robust fundraising,secondaries fund

115、s play an increasingly important role for LPs and GPs.Global secondaries deal volume grew 4 percent to$112 billion,making 2023 the second most active year on record.5 And GP-led deals,including continuation vehicles,totaled$52 billion,the third year in a row where volume exceeded$50 billion.GPs now

116、commonly employ continuation vehicles to provide exit opportunities for LPs while extending hold periods for higher-performing assets.LP-led deals totaled$60 billion,up 7 percent year over year.Given that PE allocations have exceeded targets for many LPs in todays environment,secondary sales offer a

117、 mechanism to rebalance Exhibit 9Fundraising by the largest secondaries managers increased in 2023.Note:Figures may not sum precisely because of rounding.1Top managers are defined by highest aggregate fundraising in secondaries since 2010.Source:PreqinMcKinsey&CompanyGlobal secondaries fundraising,$

118、billion20123.917.921.8201314.511.025.5201412.921.834.620155.321.726.9201611.724.035.8201719.329.248.5201817.615.733.3201914.613.428.0202022.373.295.5202133.110.643.7202229.010.739.7202329.646.576.120115.18.313.320106.610.016.6Top 10 secondaries managers1Remaining secondaries managers+92%15Private ma

119、rkets:A slower eraa portfolio,enabling LPs to make fresh commitments into new fund vintages.Among LPs that sold positions in 2023,36 percent did so principally to generate liquidity,versus just 14 percent a year ago.Still,LP-led deal volume was slightly lower last year than at its peak in 2021,sugge

120、sting that,despite the benefits of using secondaries as portfolio management tools,LPs have not moved en masse to exit positions,in part because of the discount required to do so.Secondaries pricing stabilized in 2023 after a considerable drop in 2022.In buyouts,pricing improved from 87 percent of N

121、AV to 91 percent,suggesting that the market is beginning to agree with asset marks,though the 2023 level remains below the seven-year average.VC and real estate pricing,conversely,remained steeply discounted,trading at 68 percent and 71 percent of NAV,respectively,signaling continued investor skepti

122、cism of current marks in these asset classes.Spotlight on non-institutional capitalThe entrance of non-institutional capital,such as high net worth and retail,into the private markets landscape is one of the most significant structural shifts in recent years.While the majority of private markets AUM

123、 continues to be sourced from institutional investors,non-institutional channels are growing at a slightly faster pace.Penetration of private market investments within non-institutional portfolios remains low,but the addressable capital pool for private markets GPs is massive.Non-institutional asset

124、s total approximately$53 trillion globally,twice as much as is controlled by global defined benefit pensions,endowments,and sovereign wealth funds combined.6 However,while institutional investors allocate 27 percent of their assets to private markets on average,7 non-institutional investors currentl

125、y allocate just 6 percent.6 McKinseys Performance Lens Global Growth Cube.7 CEM Benchmarking.Retails growing relevance in the private markets is propelled by both demand and supply factors.With private markets asset classes outperforming their public market equivalents over the past decade,individua

126、l investors and their financial advisors are seeking incremental private markets exposure to improve absolute returns and increase diversification.Regulatory changes are also stimulating demand.In Europe,amendments to the European Long Term Investment Funds in 2023 made private asset classes more ac

127、cessible to individual investors by easing minimum investment and diversification requirements.And in the United States,the Securities and Exchange Commissions 2023 rulings mandating additional disclosures from GPs for all investor types has lowered the effective barrier to raising retail capital.Me

128、anwhile,on the supply side,GPs,particularly large,multi-strategy managers,are actively targeting non-institutional capital to sustain their growth trajectories amid a fundraising slowdown from institutional investors.Moreover,the proliferation of investment products has substantially improved asset

129、managers ability to raise retail capital.Products such as interval funds,tender offer funds,and a new generation of non-traded real estate investment trusts(REITs)and business development companies(BDCs)allow for more frequent subscription and redemption periods to meet retail investors liquidity ne

130、eds.Of course,managing retail capital comes with its share of challenges.Intermittent-liquidity vehicles,for instance,require a separate and complex set of operational capabilities.An ecosystem of new technology solutions,including third-party digital wealth distribution platforms,is helping ease is

131、sues related to investor onboarding,subscriptions and redemptions,capital call tracking and collection,and reporting.16Private markets:A slower eraOther challenges are yet to be resolved.For example,fundraising from retail channels requires GPs to develop a revamped go-to-market approach,as non-inst

132、itutional sales are almost entirely conducted through a B2B2C process involving a broad range of intermediaries.A one-size-fits-all sales approach is rarely effective.In addition,effective retail product distribution requires a proactive sales force to actively engage withand educateadvisers.In addi

133、tion to maintaining retail products and a distribution platform,GPs hoping to grow substantially in the space must also hire and train a salesforce that has deep relationships and experience in the retail channel.8 Cerulli;GP annual reports.These factors have contributed to substantially greater con

134、centration of fund flows in the retail channel than in the institutional channel.The largest and best-known managers have captured up to 50 percent of total fundraising in some strategies as a result of their investment in sales teams and brand marketing.8 Indeed,our research shows that the overall

135、sales and service experience ranks high in the selection of alternative products,second only to investment performance.17Private markets:A slower eraHigher financing costs,lower multiples,and an uncertain macroeconomic environment created a challenging backdrop for private equity managers in 2023.Fu

136、ndraising declined for the second year in a row,falling 15 percent to$649 billion,as LPs grappled with the denominator effect and a slowdown in distributions.Managers were on the fundraising trail longer to raise this capital:funds that closed in 2023 were open for a record-high average of 20.1 mont

137、hs,notably longer than 18.7 months in 2022 and 14.1 months in 2018.VC and growth equity strategies led the decline,dropping to their lowest level of cumulative capital raised since 2015.Fundraising in Asia fell for the fourth year of the last five,with the greatest decline in China.Despite the diffi

138、cult fundraising context,a subset of strategies and managers prevailed.Buyout managers collectively had their best fundraising year on record,raising more than$400 billion.Fundraising in Europe surged by more than 50 percent,resulting in the regions biggest haul ever.The largest managers raised an o

139、utsized share of the total for a second consecutive year,making 2023 the most concentrated fundraising year of the last decade.Despite the drop in aggregate fundraising,PE assets under management increased 8 percent to$8.2 trillion.Only a small part of this growth was performance driven:PE funds pro

140、duced a net IRR of just 2.5 percent through September 30,2023.Buyouts and growth equity generated positive returns,while VC lost money.PE performance,dating back to the beginning of 2022,remains negative,highlighting the difficulty of generating attractive investment returns in a higher interest rat

141、e and lower multiple environment.As PE managers devise value creation strategies to improve performance,their focus includes ensuring operating efficiency and profitability of their portfolio companies.Deal activity volume and count fell sharply,by 21 percent and 24 percent,respectively,which contin

142、ued the slower pace set in the second half of 2022.Sponsors largely opted to hold assets longer rather than lock in underwhelming returns.While higher financing costs and valuation mismatches weighed on overall deal activity,certain types of M&A gained share.Add-on deals,for example,accounted for a

143、record 46 percent of total buyout deal volume last year.Private equity down but not out 218Private markets:A slower eraFundraisingGlobally,PE fundraising declined 15 percent to$649 billion in 2023,the lowest total since 2017.The asset classs fundraising challenges mirror those affecting the broader

144、private markets landscape in many respects.Consider the denominator effect,which more than 50 percent of LPs in a recent survey identified as having influenced their capital allocation decisions in 2023.9 Entering the year,LPs were overallocated to PE by 100 basis points on average,according to CEM

145、Benchmarking.While public equity markets bounced back over the course of the year,exit volume fell 10 percent year over year,which helped drive up NAV(the numerator)and thereby mitigated potential relief from a rebounding denominator.9 Preqin.Fundraising trajectories of the three main PE strategies

146、diverged in 2023.Buyout managers collectively were more successful than they have ever been,raising$424 billion.Conversely,fundraising declined precipitously for both growth equity and VC,with the former declining 30 percent to$117 billion and the latter falling 59 percent to$98 billion,the lowest l

147、evel since 2016(Exhibit 10).This marked a reversal of fortune for VC:fundraising for the strategy had grown seven percentage points per year faster than buyout fundraising in the decade leading up to 2022.VC fundraising was also disproportionately impacted by the steep decline of Asia-focused PE fun

148、draising52 percent of the strategys fundraising from 20122021 came from the region versus just 12 percent for buyout.Exhibit 10Global PE fundraising fell to$649 billion.McKinsey&CompanyGlobal private equity fundraising by sub-asset class,1$billion202320072002091Excludes seconda

149、ries,funds of funds,and co-investment vehicles.2Includes turnaround,PIPE,balanced,hybrid funds,and funds with unspecified strategy.Source:Preqin201823 CAGR,%202223 growth,%Total15.41.058.712.8Venture capital29.211.0Buyout39.268.3Other private equity230.41.6Growth0050060070080090019Private

150、 markets:A slower eraNorth Americafocused PE fundraising declined 16 percent year over year to$424 billion,the third-highest annual total on record.Consistent with the global trend,buyout fundraising in North America increased 26 percent to$281 billion,while growth equity fundraising declined 19 per

151、cent to$86 billion,and VC fundraising fell 67 percent to$49 billion.Last year was the first year in which growth equity funds raised more capital than VC funds in the region.Europe-focused PE funds had a record year in many respects.PE fundraising increased 57 percent to$159 billion,propelling Europ

152、e ahead of Asia in aggregate capital raising for the first time since 2013.Buyout fundraising increased 87 percent to$122 billion,reversing a three-year negative trend.Europe is also now home to the largest buyout fund on record,which closed at$29 billion last year.Growth equity in the region surged

153、 55 percent to reach$19.1 billion,surpassing VC,for which fundraising declined 25 percent to$17.3 billion.In Asia,PE fundraising declined 51 percent to$54 billion,the lowest since 2010.Fundraising in the region has declined 77 percent since its peak in 2018.The drop in China-focused fundraising play

154、ed a sig-nificant role in the decline,with only$22 billion raised in aggregate last year,compared to$205 billion in 2017.Chinas share of PE fundraising in Asia has fallen from 86 percent in 2017 to 41 percent in 2023.Asia-focused VC fundraising decreased 55 percent to$25 billion,growth equity fell 4

155、8 percent to$10 billion,and buyout declined 46 percent to$18 billion.Meanwhile,fundraising in the rest of the world plummeted from$49 billion to$12 billion,following three consecutive years of growth.Concentration into larger funds Over the long term,the market structure in PE has remained remarkabl

156、y consistent.For example,the share of dollars accruing to the 25 most successful fundraising managers over a given five-year period in the last decade has remained stable between 24 and 25 percent.(Exhibit 11).Exhibit 11Relative market concentration has remained remarkably steady in private equity.N

157、ote:Figures may not sum precisely because of rounding.1Excludes secondaries,funds of funds,and co-investment vehicles.Source:PreqinMcKinsey&CompanyWeb Exhibit of Share of trailing 5-year PE fundraising,1%2000620042002020222023Top 610Top 5Top 1125Top 26100Top 10125010-year avera

158、geLong-tail managers242242320438707050639228982094320201414414320Private markets:A slower eraExhibit 1210-year averageTop ma

159、nagers captured a greater share of PE fundraising in 2023.Note:Figures may not sum precisely because of rounding.1As defned by managers with highest cumulative fundraising in each year.Excludes secondaries,funds of funds,and co-investment vehicles.Source:PreqinMcKinsey&CompanyShare of PE fundraising

160、 by year,1%2000620002002200420020202220233032225222025252452896542422

161、16172730Top 5Top 610Top 1125Top 26100Top 101250Long-tail managersFundraising in 2023 was more concentrated than in any year of the prior decade,with 47 percent of all dollars raised accruing to just 25 managers(Exhibit 12).On an annual basis,fundraising concentration

162、 is heavily influenced by which funds are in the market in a given year,as well as LPs willingness and ability to back smaller and newer managers.In 2023,as was the case in the year prior,investors concentrated their allocations amid a broader pullback in commitments,allocations to existing managers

163、 persisted,and larger funds and their sponsors collected a greater share of capital.Consequently,new firm formation slowed.First-time funds raised$41 billion in 2023,the lowest total since 2013,as launching a new firm proved exceedingly challenging.Whether recent concentration is indicative of oft-r

164、umored consolidation(a hypothesis strengthened by a recent spate of M&A)or is simply a cyclical capital rotation similar to past downturns remains to be determined.Consistent with the above concentration trend,managers raised(many)fewer but(much)larger funds.Dollars allocated to funds exceeding$5 bi

165、llion grew 8 percent year over year,while fundraising for vehicles of less than$1 billion fell more than 33 percent.The count of funds smaller than$250 million fell 55 percent to 938,the fewest since 2013 and 70 percent below 2021s peak(Exhibit 13).Meanwhile,ten funds of at least$10 billion closed i

166、n 2023,the second most on record.As a result,the average fund size across PE strategies increased to approximately$497 million,up 67 percent year over year and roughly twice the average fund size in 2018.Increased concentration among larger funds may in part reflect investors desire to limit risk in

167、 an uncertain market.Although the median performance of larger funds is generally comparable to that of smaller funds,the dispersion of returns among larger funds is relatively limited(Exhibit 14).21Private markets:A slower eraExhibit 13The number of small PE funds closed in 2023 fell 55 percent.1Ex

168、cludes secondaries,funds of funds,and co-investment vehicles.Source:PreqinMcKinsey&CompanyPrivate equity fundraising by fund size and close year,1 thousands of funds3.820223.220212.82.420202.62.120192.72.320182.92.520172.52.120162.11.820151.41.120141.10.920131.00.820121.00.820110.80.7200720100.60.52

169、0090.80.620080.80.62.620232.11.30.9$10 billion55%999300241713121356First-time manager share by dollars fundraised,%Exhibit 304050Venture capitalSmall cap($10 billion)52%46%35%37%25%18%Larger buyout funds have smaller performance spreads between top-and bottom-performing funds.1

170、Fund performance assessed using IRR calculated by grouping performance of 200020 vintage buyout funds during 200023.Some data not available for certain periods.Source:MSCI Private Capital SolutionsMcKinsey&CompanyGlobal buyout fund performance,1 IRR for 200020 vintage funds,%Top 5%Top quartileMedian

171、Bottom quartileBottom 5%Diference between top and bottom 5%22Private markets:A slower eraAUM Global private equity AUM increased to$8.2 trillion through June 30,2023,and has grown 22 percent per year over the last five years.Within PE,the AUM mix has shifted considerably over time.Buyouts accounted

172、for 47 percent of the global total as of the first half of 2023,down from 55 percent in 2018.VCs share was 33 percent during the same period,up from 23 percent five years prior.Buyout strategies accounted for a majority share of European and North American AUM(74 percent and 55 percent,respectively)

173、.In Asia,however,VC accounted for the majority of AUM,at 58 percent,followed by growth equitys 23 percent and buyouts 17 percent.The distribution of AUM in the rest of the world was more evenly split,with VC accounting for 38 percent,growth equity 30 percent,and buyouts 31 percent as of June 30,2023

174、.PE dry powder grew to a record$2.2 trillion through the first half of 2023,driven by a dramatic slowdown in dealmaking while fundraising continued,albeit at a slower pace.Dry-powder inventory(the amount of capital available to GPs expressed as a multiple of annual deployment)increased from 1.1 year

175、s in 2022 to 1.6 years in 2023 but remains within the metrics normal historical range(Exhibit 15).Exhibit 15Global inventories of PE dry powder continued to increase in 2023.McKinsey&CompanyWeb Exhibit of Years of private equity inventory on hand,1 turns 1Capital committed but not deployed,divided b

176、y equity deal volume.Equity deal volume estimated using transaction volume and leverage figures for the full year.Dry powder for 2023 is based on figure as of June 30,2023.Source:PitchBook;Preqin20002120234.03.02.001.03-year trailingIn year23Private markets:A slower eraPerforma

177、nce PE rebounded to post modestly positive returns in 2023,achieving a net IRR of 2.5 percent through September.However,despite the improvement,performance in 2023 was still the second worst since the global financial crisis.10 Buyouts(4.9 percent net IRR)and growth equity funds(3.0 percent)generate

178、d positive returns in 2023,while VC lost money (2.9 percent)for the second consecutive year(Exhibit 16).VCs underperformance in the current environment is not altogether surprising,10 As of September 30,2023.as the high-growth,long dated cash flows that characterize most VC investments are inherentl

179、y less valuable in a higher-discount-rate environment.Despite recent challenges,long-term PE returns remain robust.PE has outperformed other private markets asset classes over the last decade.The median net IRR for PE funds launched between 2011 and 2020 was 16.4 percent as of September 30,2023,exce

180、eding even the top-quartile returns of all other private asset classes.At the top end,Exhibit 16Buyout outperformed other PE strategies.McKinsey&CompanyPerformance by strategy,1-year pooled IRR for 200020 vintage funds,1%1Fund performance assessed using IRR calculated by grouping performance of 2000

181、20 funds during 200023.Some data not available for certain periods.IRR for 2023 is YTD as of Sept 30,2023.Source:MSCI Private Capital Solutions50604030200320000218GrowthBuyoutAll private equityVenture capital24Private markets:A slower eraPEs per

182、formance has been exceptional,with top-quartile funds producing net IRRs in excess of 24 percent.Across strategies,buyout funds have generated the highest returns at every quartile,while VC has the widest variation in fund performance,a 16-percentage-point interquartile spread (Exhibit 17).Growth eq

183、uity returns have been the least impressive,though dispersion of returns among growth equity funds is relatively low.11 MSCI Private Capital Solutions.Though PE underperformed public equities in 2023(the MSCI World Index returned 22.6 percent through the third quarter of 2023),it has out-performed p

184、ublic equivalents over longer periods.According to the Kaplan-Schoar Public Market Equivalent analysis,which benchmarks PE perfor-mance against a public market index by accounting for the timing of cash flows,the median PE fund from 201020 vintages outperformed its public market equivalent by 1.1 ti

185、mes.In fact,the median PE fund in every vintage during the measured decade outperformed public market equivalents.11Exhibit 17Buyout funds have higher average returns and lower dispersion than venture capital.McKinsey&CompanyWeb Exhibit of Performance by private equity strategy,median IRR and quarti

186、le spreads for 201120 vintage funds,1%1IRR spreads calculated for funds for separate vintage years from 201120 and then averaged out.Median IRR was calculated by taking the average of the median IRR for funds within each vintage year;net IRR to date through Sept 30,2023.Source:MSCI Private Capital S

187、olutionsBottom 25%MedianTop 25%Private equityVenture capitalBuyoutGrowth capital24.016.48.815.225.418.111.813.623.715.77.716.016.99.85.411.525Private markets:A slower eraIn todays environment,the drivers of investment returns for PE funds are evolving.According to an analysis by the StepStone Group,

188、historical returns have been substantially driven by market multiple expansion and leverage(Exhibit 18).However,decade-long tailwinds of low and decreasing interest rates and expanding multiples have seemingly reversed,perhaps limiting fund managers ability to rely on these two sources of investment

189、 performance.Now alpha generation at the asset levelgrowing revenue and increasing marginhas become increasingly important for managers seeking to reach or exceed their return targets.Deal activityHigher interest rates led to a substantial drop in deal volume for the second consecutive year.After a

190、frenzied 2021,during which volume spiked to an all-time high of$3.4 trillion,and robust activity in the first half of 2022,dealmaking became more difficult in 2022s second half.That slower pace continued through 2023,with deal volume totaling$2.1 trillion,down 21 percent from the prior year and 38 p

191、ercent below the 2021 peak.Deal count fell more sharply,declining 24 percent to less than 54,000.Even so,2023 remained the third most active dealmaking Exhibit 18Leverage and market multiple expansion drove 67 percent of investment returns for buyout deals from 2010 to 2021.McKinsey&CompanyWeb Exhib

192、it of Drivers of investment returns for realized deals,201021,1 multiple of invested capital1Sample includes 2,512 buyout deals that were entered on or after Jan 1,2010,and exited on or before Dec 31,2021.Source:SPI by StepStoneInvested capitalRevenue growthUnlevered returnLevered returnLeverageEBIT

193、DA margin expansionMarket EBITDA multiple expansionDebt paydown plus dividendsGeneral partner EBITDA multiple contraction1.00.70.20.70.30.22.01.03.026Private markets:A slower erayear on record as measured by both volume and deal count(Exhibit 19).Deal volume decreased 23 percent in North America,to

194、just under$1.1 trillion,and 19 percent in Europe,to$740 billion.The steepest decline was in Asia,where deal volume decreased 26 percent to$200 billion.Global buyout deal volume declined 19 percent to$1.5 trillion,while growth equity fell 14 percent to$240 billion.VC deal volume declined the most amo

195、ng PE strategies,dropping 36 percent to$342 billion,as new funding and follow-on raises became harder to achieve.Deal volumes in the information technology and energy sectors declined the most year over year,decreasing by 38 percent and 31 percent,respectively.Meanwhile,deal volume grew in two secto

196、rs:materials and resources and financial services(Exhibit 20).Non-platform(also known as add-on)deals have consistently grown in popularity as a means for established portfolio platforms to accelerate growth Exhibit 19Private equity deal volume declined 21 percent.McKinsey&CompanyWeb Exhibit of 1Inc

197、ludes buyout/LBO(add-on,asset acquisition,carve-out,corporate divestiture,debt conversion,distressed acquisition,management buyout,management buy-in,privatization,recapitalization,public-to-private,secondary buyout);growth/expansion(recapitalization,dividend recapitalization,and leveraged recapitali

198、zation);platform creation;angel;seed round early-stage VC;later-stage VC;restarts(angel,early-stage VC,later-stage VC).Source:PitchBookGlobal private equity deal volume,1$billionGlobal private equity deal count,1 number of deals,thousands EuropeAsiaRest of worldNorth AmericaTotal20002023200420082012

199、201620203,5003,0005002,5002,0001,5001,000020002023202020042008200502010403002,6873,4052,110576(21%)70.975.553.817.1(24%)27Private markets:A slower eraExhibit 20Deal activity declined the most in information technology,energy,and healthcare sectors.McKinsey&CompanyWeb Exhibit of Note:Figur

200、es may not sum precisely due to rounding.Source:PitchBookGlobal private equity deal volume by sector,$billion 201823 CAGR,%202223 CAGR,%12.75.4Business products and services(B2B)38.12.2Information technology 21.04.5Consumer products and services(B2C)28.40.1Healthcare5.39.0Financial services31.20.9En

201、ergy33.52.9Materials and resources26418558733,4052023154524231,77520207654154921,922901,89520273103054731,627202,23701,35620043917367732,687202228Private markets:A slower eraand r

202、ecognize synergies.Non-platform deals represented 70 percent of the total buyout deal count in 2023,up more than 20 percentage points from 2010 levels(Exhibit 21).As a percentage of buyout deal volume,non-platform deals accounted for 46 percent,the highest ratio in more than a decade.Historically,GP

203、s seek to benefit from the multiple arbitrage available from adding a smaller business(that,on average,trades at a lower multiple)to an existing platform(that trades at a higher multiple)in situations where the acquired companies are properly integrated and synergies have been proven.ExitsAmid the b

204、roader decline in deal volume,PE exit volume fell substantially,as sponsors opted to avoid selling into a lower-multiple environment.Global exits by count declined 23 percent,reaching their lowest level since 2013.Measured by dollar volume,exits declined 10 percent to$840 billion,falling well below

205、the past decades average annual volume of$1 trillion.12 PitchBook.13 Ibid.14 StepStone Group.The decrease in exits was particularly noticeable in North America,where PE exits(excluding VC)declined 28 percent by volume from the previous year.In Europe and Asia,exits fell 12 percent and 1 percent,resp

206、ectively.12Continued decline in exits has led to an increase in the average holding period for funds.In 2023,average holding periods reached a record high of 6.8 years.13 Mathematically,funds with a longer hold period require a higher multiple of invested capital(MOIC)to reach similar IRRs,further e

207、mphasizing the importance of value creation and earnings growth in the current environment.Deal multiples and leverageFrom 2010 to 2022,PE and public market multiples expanded steadily,with valuation growth in the private markets slightly surpassing that in public markets.The median buyout purchase

208、price multiple increased from 7.7 times to 11.9 times EBITDA over this period.14 In other words,an investor had to pay roughly 50 percent more in 2022 than 2010 to Exhibit 21Non-platform deals accounted for an increased share of PE buyout activity.McKinsey&CompanySource:PitchBookPE buyout deal volum

209、e,%205565760636568727057287220206642020204456202572023465420163268Non-platformPlatformNon-platform deals,%of deal count29Private markets:A slower eraacquire the same EBITDA.Multiple expansion provided a consistent tailwind

210、for investors through this period:of investments made since the Global Financial Crisis,nearly every investment was consummated in a lower-multiple environment than the environment into which it was exited.Multiples upward march reversed in 2023,however,declining for the first time in a decade.Throu

211、gh September 30,2023,the year-to-date median global buyout multiple fell by nearly one turn to 11 times EBITDA.Global public equity multiples decreased as well,declining to 11.3 times EBITDA through September from an average of 12.1 times in 2022(Exhibit 22).The largest year-over-year compressions i

212、n purchase price multiples(1.5 times)occurred in information technologywhich had experienced more than eight turns of multiple expansion from 2009 to 2021,the most among any sectorand in industrials.Financial services multiples bucked the trend(+0.2 times,continuing a five-year expansion streak),as

213、did communication services multiples(+1.1 times).Exhibit 2215x10 x5x0 xGlobal buyout entry multiples declined nearly one turn.McKinsey&CompanyMedian global buyout entry multiples and public equity multiples,turns of EBITDA200000222023120161Global buyout an

214、d MSCI World data as of Sept 29,2023.Source:Bloomberg;SPI by StepStoneMSCI World(EV/EBITDA)Global buyout(purchase price/EBITDA)6.67.77.57.58.38.78.79.49.910.69.711.814.611.711.511.711.312.611.312.111.011.911.310.110.011.110.711.912.37.730Private markets:A slower eraUS buyout leverage declined by rou

215、ghly one turn in 2023,falling from 7.1 to 5.9 times EBITDA for large corporate deals,and from 5.0 to 4.1 times for middle-market deals(Exhibit 23).Higher financing costs and lower valuation multiples contributed to a marked decline in the use of leverage from the previous years record high.Historica

216、l PE performance has been driven significantly by leverage,which accounted for approximately 50 percent of investment returns for buyout deals from 2010 to 2021,according to the StepStone Group.Reduced use of leverage in the current environment,combined with the higher cost of financing,will have a

217、mitigating effect on investment returns for the current vintage of deals,all else equal.This trend,combined with lower exit multiples(should they sustain),will make operational improvements within portfolio companies critical for investment outperformance in the current environment.Exhibit 238x6x4x2

218、x0 xSyndicated middle marketSyndicated large corporate1.20.9US buyout leverage declined approximately one turn in 2023.McKinsey&CompanyUS buyout leverage,debt/EBITDA 20002020216Source:LSEG LPC31Private markets:A slower eraFor real estate,2023 was a year of transition

219、,characterized by a litany of new and familiar challenges.Pandemic-driven demand issues continued,while elevated financing costs,expanding cap rates,and valuation uncertainty weighed on commercial real estate deal volumes,fundraising,and investment performance.Managers faced one of the toughest fund

220、raising environments in many years.Global closed-end fundraising declined 34 percent to$125 billion.While fundraising challenges were widespread,they were not ubiquitous across strategies.Dollars continued to shift to large,multi-asset class platforms,with the top five managers accounting for 37 per

221、cent of aggregate closed-end real estate fundraising.In April,the largest real estate fund ever raised closed on a record$30 billion.Capital shifted away from core and core-plus strategies as investors sought liquidity through redemptions in open-end vehicles and reduced gross contributions to the l

222、owest level since 2009.Opportunistic strategies benefited from this shift,as investors turned their attention toward capital appreciation over income generation in a market where alternative sources of yield have grown more attractive.In the United States,for instance,open-end funds,as represented b

223、y the National Council of Real Estate Investment Fiduciaries Fund Index Open End Equity(NFI-OE)Index,recorded$13 billion in net outflows in 2023,reversing the trend of positive net inflows throughout the 2010s.The negative flows mainly reflected$9 billion in core outflows,with core-plus funds accoun

224、ting for the remaining outflows,which reversed a 20-year run of net inflows.As a result,the NAV in US open-end funds fell roughly 16 percent year over year.Meanwhile,global assets under management in closed-end funds reached a new peak of$1.7 trillion as of June 2023,growing 14 percent between June

225、2022 and June 2023.Real estate underperformed historical averages in 2023,as previously high-performing multifamily and industrial sectors joined office in producing negative returns caused by slowing demand growth and cap rate expansion.Closed-end funds generated a pooled net IRR of 3.5 percent in

226、the first nine months of 2023,losing money for the first time since the global financial crisis.The lone bright spot among major sectors was hospitality,whichthanks to a rush of postpandemic travelreturned 10.3 percent in 2023.15 As a whole,the average pooled lifetime net IRRs for closed-end real es

227、tate funds from 201120 vintages remained around historical levels(9.8 percent).15 Based on NCREIFs NPI index.Hotels represent 1 percent of total properties in the index.Real estate recedes332Private markets:A slower eraGlobal deal volume declined 47 percent in 2023 to reach a ten-year low of$650 bil

228、lion,driven by widening bidask spreads amid valuation uncertainty and higher costs of financing.16 Deal flow in the office sector remained depressed,partly as a result of continued uncertainty in the demand for space in a hybrid working world.Closed-end fundsGlobal closed-end fundraising fell 34 per

229、cent year over year to$125 billion,the lowest total raised since 2014.Fundraising volumes declined broadly across regions,albeit at different rates.Fundraising in North America fell 37 percent to$84 billion,marking the second consecutive annual decline off the 2021 peak.Despite the drop,North Americ

230、a continues to be 16 CBRE;Real Capital Analytics.the largest fundraising market.Fundraising in Asia declined 41 percent to$15 billion,while European fundraising fell a more moderate 14 percent to$22 billion.Fundraising declines were similarly widespread across risk strategies,with some thematic vari

231、ation(Exhibit 24).Fundraising for closed-end core and core-plus funds,already a small share of the market,dropped 51 percent from the prior year,the largest drop among strategies.Since 2021,fundraising for the lowest-risk equity strategies has declined 70 percent as investors shifted commitments tow

232、ard strategies more reliant upon capital return.Despite this trend,fundraising for opportunistic vehicles,typically the largest segment in closed-end real estate,fell 18 percent to$55 billion.Exhibit 24Closed-end real estate fundraising fell to$125 billion.McKinsey&CompanyGlobal closed-end real esta

233、te fundraising by strategy,1$billionNote:Figures may not sum precisely because of rounding.1Excludes secondaries,funds of funds,and co-investment vehicles.2Includes distressed real estate.Source:Preqin201823 CAGR,%202223 growth,%Total34.35.244.67.7Value added 18.40.4Opportunistic230.59.7Debt51.18.5C

234、ore and core-plus20142012 200019 2020 2021 2022 202370892623658027394533368286728473685277422934%33Private markets:A slower eraReturns Global closed-end real estate funds returned

235、 3.5 percent net IRR through the first nine months of 2023,the first time the asset class has generated negative returns since the Global Financial Crisis.The loss in 2023 follows a ten-year high of 26 percent posted in 2021,enabled by rapid rent growth and cap rate compression in certain sectors,an

236、d a modest 1.5 percent return in 2022 as those trends slowed or reversed.Despite recent volatility in a challenging market environment,long-term returns for closed-end real estate funds remain relatively consistent.As of September 30,2023,every vintage from 2010 to 2020 has produced a pooled-net IRR

237、 between 7.5 and 12.5 percent.The median net IRR for funds in that vintage set stands at 9.9 percent,which is in line with infrastructure returns and trails PE by roughly 600 basis points.AUMTotal global real estate AUM in closed-end funds grew to a record high of roughly$1.7 trillion as of June 202

238、3.The 13 percent year-over-year increase primarily came from capital flowing into higher-risk strategies(for instance,opportunistic),though with some regional variation.Asia was the fastest growing of the major regions,with AUM increasing by roughly 28 percent to$226 billion.In North America,AUM inc

239、reased 16 percent to$989 billion,while European AUM increased 3 percent to reach$379 billion.Despite a less productive year in fundraising,dry powder in closed-end real estate funds grew by 19 percent in the first six months of 2023,spurred by a slow deal market,to reach a new all-time high of$548 b

240、illion.Over the last five years,dry powder in the asset class has grown by roughly 13 percent per year.Despite recent volatility in a challenging market environment,long-term returns for closed-end real estate funds remain relatively consistent.34Private markets:A slower eraMarket concentrationAs in

241、 other private markets asset classes,fundraising became increasingly concentrated in 2023 as investors continued to favor established names and larger funds.Just five managers raised 37 percent of the aggregate closed-end fundraising in 2023the highest proportion since 2001 and up 20 percentage poin

242、ts from 2021(Exhibit 25).Managers raised fewer and larger funds during 2023.The average size of closed-end real estate funds,for example,increased 17 percent to$418 million.In the markedly difficult environment for new entrants,the number of funds that closed in 2023 totaled 457,notably fewer than 7

243、43 in 2022 and the decades peak of 865 in 2021.Meanwhile,funds greater than$1 billion accounted for roughly 64 percent of the overall fundraising total,up from 51 percent in 2022.The shift to larger funds in a difficult environment is consistent with prior downturns,such as the Global Financial Cris

244、is and the dot-com crash,and is perhaps a form of risk management for LPs.In real estate,larger funds outperform at the median,and the dispersion of returns among larger funds is relatively narrow Exhibit 25Fundraising concentration in the top five closed-end funds reached a 20-year high.Note:Figure

245、s may not sum precisely because of rounding.Source:PreqinMcKinsey&CompanyWeb Exhibit of Closed-end real estate fundraising by year,%Top 610Top 5Top 1125Top 26100Top 101250Long-tail managers2000696200444242020420083311025720

246、402834227927927302022092020389737201135Private markets:A slower era(Exhibit 26).Large managers leverage their scale to attract and retain talent,acquire diverse portfol

247、ios,engage in systematic joint ventures with operators(or acquire operating companies in their entirety),and invest in digital capabilities to enhance efficiency and gain valuable insights.Open-end fundsWithin open-end funds in the United States,as represented by the NFI-OE Index,distributions and r

248、edemptions exceeded contributions,reversing the 2022 trend.Nearly$13 billion in capital flowed out of US open-end funds in 2023,compared with net inflows approaching$3 billion in 2022(Exhibit 27).The reduction in net inflows mainly resulted from a 74 percent($23 billion)reduction in gross contributi

249、ons,which had reached a record high during the prior year.While dollars have flowed out of core funds for five consecutive years,the change in the overall trend was driven by net outflows from core-plus vehicles that experienced net outflows for the first time in two decades.ReturnsOpen-end fund per

250、formance declined considerably,and the category fared worse than closed-end funds.NFI-OE funds returned 12.2 percent on a net basis,the first annual decline since the global financial crisis and a marked drop from the strong performance in 2021 and 2022.Given elevated interest rates and uncertain de

251、mand,cap rates expanded approximately 60 basis points to reach 5.1 and 5.7 percent in industrial and multifamily sectors respectively,while the office sector expanded by roughly 300 basis points,reaching almost 11 percent(Exhibit 28).Unlike last year,rent growth did not offset cap rate expansion con

252、tributing to lower returns in most sectors.Exhibit 26Real estate funds larger than$5 billion have outperformed,with less dispersion.McKinsey&CompanyMedian IRR and quartile spread by fund size,net IRR for vintages 201620,1%1Net IRR of funds through Sept 30,2023.IRR spreads were calculated for funds w

253、ithin vintage years separately and then averaged out.Median IRR was calculated by taking the average of the median IRR for funds within each vintage year.Source:MSCI Private Capital SolutionsBottom 25%MedianTop 25%$5 billion$1 billion$15 billion8.518.611.910.115.88.31.916.09.73.413.912.636Private ma

254、rkets:A slower eraExhibit 27Open-end real estate investor cash flows,1$billion ContributionsDistributions and redemptions200020052000520023004005101512.653Net flows2Net outfows for US open-end funds reached$13 billion,the lowest level on record.McKinsey&Co

255、mpany1NFI-OE includes real estate open-end vehicles across all strategies.2Contributions less distributions and redemptions.Source:National Council of Real Estate Investment FiduciariesExhibit 28Cap rate expansion continued in 2023.McKinsey&CompanyWeb Exhibit of Capitalization rates,%5201

256、620222023Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2QApartmentRetail1IndustrialOfce1Defined as strip centers.Source:Green Street37Private markets:A slower eraPerformance varied across sectors.The office sector posted the lowest annual returns(17.6 per

257、cent),while hospitality assets produced the strongest returns(10.3 percent).In stark contrast to their high performance over the last several years,multifamily and industrial sectors posted returns of 7.3 and 4.1 percent,attributable to slowing rent growth17 and expanding cap rates.Net asset value T

258、he total NAV of funds included in the NFI-OE Index reached$309 billion,down 16 percent from$368 billion in the fourth quarter of 2022 and the sharpest decline since 2010,when NAV fell 20 percent.Still,over the long term,growth in NAV has been substantial,increasing 17 percent per year between 2010 a

259、nd 2022.17 CoStar.Deal activity Global real estate deal activity declined in 2023,as it did in the second half of 2022,weighed down by the higher cost and lower availability of financing,combined with valuation uncertainty.Global deal volume reached a ten-year low,totaling$645 billion.In the America

260、s,deal volume fell to a ten-year low,totaling$375 billion(Exhibit 29).Deal activity declined 29 percent to$94 billion in AsiaPacific and 46 percent to$178 billion in EMEA.The interest rate environment has left the real estate market in a state of suspended animation.Demand uncertainty and rising int

261、erest rates have made price discovery challenging,and the widening bidExhibit 29Global deal volume fell 47 percent.Source:CBRE;Real Capital AnalyticsMcKinsey&CompanyGlobal real estate deal volume,$billion 900700500300020020022202320223 growth,%201823 CAGR,

262、%Total46.710.329.27.5AsiaPacifc50.28.4Americas45.914.6EMEA38Private markets:A slower eraask spread between would-be buyers and sellers has made it exceedingly difficult to transact.While sellers may be anchored to valuations calculated in a low-interest-rate environment and are reluctant to adjust d

263、ownward,buyers face increased borrowing costs and anticipated economic headwinds.There is reason to believe that the bidask spread will narrow in the not-so-distant future.Bidding activity increased in late 2023,with the average number of bids per deal rising 16 percent.1818 Erik Sherman,“The many i

264、mplications of the narrowing bidask gap,”GlobeSt,January 16,2024.Global deal activity declined across all major sectors(Exhibit 30).Multifamily and industrial deal volume declined 57 and 38 percent in 2023,respectively,the second consecutive year of declines after reaching record highs in 2021.Meanw

265、hile,office sector deals fell 55 percent,reaching a ten-year low of$133 billion.Prior to the mass adoption of hybrid work,office deals had represented the plurality of market volumes(see sidebar“Lasting effects of the pandemic on global real estate”).Now,with continuing uncertainty in sectoral deman

266、d,price discovery remains a substantial challenge.Exhibit 30Real estate deal volume declined across every major sub-asset class.McKinsey&CompanyWeb Exhibit of Global deal volume by sub-asset class,1$billion 1Commercial deal volume;excludes residential.Source:CBRE;Real Capital Analytics200

267、020202120222023OtherHotelMultifamilyIndustrialRetailOffice907328651,03634365950211491,068215611,177253601,2651,46435930777155488781,262367596451583956%3339Private markets:A slower

268、 eraExhibitChange in demand for real estate before prices adjust,201930,%Change resulting from factors unrelated to the pandemic Change resulting from pandemic-driven behaviorOfce spaceResidential space in urban cores1Retail space in urban cores0010201020Houston3262Paris9413Munich4816Toky

269、o2129Beijing952Shanghai1314London22611New York City14616SanFrancisco20172In a moderate scenario,demand for ofce and retail space falls sharply from 2019 to 2030.McKinsey&CompanyWeb Exhibit of Note:For more information about the scenario,see the technical appendix.1Demand for residential space in sup

270、erstar cities is highly price elastic,so in the long run,these shifts would probably lead to a rebalancing of prices rather than an actual reduction in demand.Source:Beijing Municipal Bureau of Statistics;BNP Paribas;Colliers;Commercial Real Estate Intelligence Solutions;CoStar;Department for Levell

271、ing Up,Housing and Communities(United Kingdom);E&G Real Estate;E-Stat(Japan);Eurostat;EW&Associates Realty;Federal Statistical Ofce(Germany);GermanProperty Partners;Kastle;Ministry of Beijing;Mitsui Fudosan;National Institute of Statistics and Economic Studies(France);National Statistics Institute(S

272、pain);Ofce for National Statistics(United Kingdom);RealAdvisor;Sanko Estate Company;Shanghai Municipal Bureau of Statistics;Statistics Bureau of Japan;TokyoMetropolitan Government;US Bureau of Labor Statistics;US Census Bureau;McKinsey Global Institute analysisThe behavioral changes caused by the pa

273、ndemiclower office attendance,accelerated migration out of cities,and less shopping in office-heavy neighborhoodswill reduce demand for real estate in most superstar cities(those with a disproportion-ate share of the worlds urban GDP and GDP growth).In a moderate scenario modeled by the McKinsey Glo

274、bal Institute,1 demand for office space in the median city studied is expected to be 13 percent lower in 2030 than it was in 2019.In a severe scenario,demand is expected to fall by 38 percent in the most heavily affected city.Similarly,demand for retail space in the superstar urban cores could be lo

275、wer in 2030 than it was in 2019.In San Franciscos urban core,for example,the moderate scenario forecasts demand being 17 percent lower(exhibit),and the severe scenario forecasts a 26 percent decrease.Demand for residences in superstar urban cores,before accounting for price adjust-ments,could be up

276、to 10 percent lower by 2030 than it would have been without the pandemic.That said,the demand for residential space in urban cores will remain higher than it was in 2019 in every city studied,except San Francisco and Paris.That estimate rests on the assumption that,although the wave of residents who

277、 left urban cores may not return,population growth in each city will return to its prepan-demic rate by 2024.If population growth remains depressed longer,the impact on demand could be bigger.Lasting effects of the pandemic on global real estate1 For the full McKinsey Global Institute report and to

278、read more about the pandemics effects on real estate and the implications for global demand,see“Empty spaces and hybrid places:The pandemics lasting impact on real estate,”McKinsey Global Institute,July 13,2023.40Private markets:A slower eraUS markets by sectorPerformance in the multifamily sector i

279、n the United States declined last year due to expanding cap rates and softening rent growth.Deal volume was down 61 percent to$118 billion from$305 billion in the prior year and well below the record high of$358 billion 19 National Council of Real Estate Investment Fiduciaries(NCREIF).in 2021(Exhibi

280、t 31).Multifamily assets collectively produced a trailing one-year return of 7.3 percent and have returned 6.0 percent per year over the trailing three-year period,as of the end of 2023.19 Due to increased apartment supply in key geographies,vacancy rates have increased to a ten-Exhibit 31Hospitalit

281、yDeal volumeTotal 2023,$billionTotal 2022,$billionYoY change,%264947Development as a%of supplyTotal 2023,%Total 2022,%YoY change,pp2.62.70.1Occupancy1Total 2023,%Total 2022,%YoY change,pp63.062.60.4AbsorptionTotal 2023,units/square feetTotal 2022,units/square feetYoY change,%NANANARevPAR2 growthTota

282、l 2023,%Total 2022,%YoY change,ppNANANACap rateTotal 2023,%Total 2022,%YoY change,pp8.68.50.1Multifamily118306614.95.91.092.493.51.81.54.63.15.75.10.67.37.114.4ReturnsTotal 2023,%Total 2022,%YoY change,ppIndustrial89160442.43.81.494.396.11.8166418604.625.6215.14.60.54.114.418.5Retail57933

283、80.50.50.096.095.80.15376301.54.93.47.36.50.80.92.73.6Office52117551.21.50.386.587.61.15577095.33.71.610.77.92.717.63.414.210.39.60.7Deal volume declined across all real estate sectors in the US.McKinsey&Company1Average of 12-month occupancy for hospitality.2Revenue per available foot.3Net residenti

284、al units absorbed,thousands of units.Source:CoStar;Green Street;National Council of Real Estate Investment Fiduciaries Property Index;Real Capital Analytics 41Private markets:A slower erayear high of 7.6 percent.20 However,the United States continues to remain structurally short of three million to

285、four million housing units,as conservatively measured by Freddie Mac.More housing,particularly affordable housing,is needed to bridge this gap.The industrial sector continues to cool from 2021 highs,which resulted from the pandemic-driven surge in e-commerce.Tenant demand has since slowed,resulting

286、in a deceleration of rent price growth.In 2023,industrial deal volume fell to a five-year low of$89 billion.According to the National Council of Real Estate Investment Fiduciaries NPI Index,industrial assets produced a trailing one-year return of 4.1 percent and have now returned 16.4 percent per ye

287、ar over the trailing three-year period.Meanwhile,absorption and leasing activity fell below prepandemic levels after two frenzied years:166 million net square feet were absorbed during the year(down 60 percent year over year),and 810 million net square feet were leased(down 18 percent year over year

288、).21 Industrial vacancy rates rose to 5.7 percent in the fourth quarter of 2023 from 3.9 percent in the fourth quarter of 2022,and rent growth fell to 6.4 percent,declining by four percentage points over the same period.The office sector remains under pressure from persisting demand uncertainty.Vaca

289、ncy rates increased in the ten largest US office markets to a record-setting 16 percent.22 Though employee attendance may be stabilizing at approximately 50 percent of prepandemic levels in the ten largest US cities,economic demand remains uncertain.Office assets collectively returned 17.6 percent o

290、ver the last year and have now returned 5.5 percent per year over the trailing three-year period.The rise in interest rates has reduced construction activity,resulting in limited new supply after current projects complete.This scarcity may significantly tighten the premium space market within a few

291、years.20 CoStar.21 Ibid.22 The markets are Boston,Chicago,Dallas,Houston,Los Angeles,New York City,San Francisco,San Jose,Seattle,and Washington,DC.23 CoStar.24 Ibid.The hospitality sector was a bright spot in 2023.According to NCREIFs NPI index,it was the only major real estate sector that recorded

292、 positive returns last year,achieving a trailing one-year return of 10.3 percent.The sector has now returned 8.6 percent per year over the trailing three-year period.Deal volume decreased by roughly 47 percent year over year.However,despite recording positive year-over-year performance,hospitality r

293、eturns declined over each successive quarter,potentially as a result of the softening of the postpandemic rush in leisure travel and sustained decline in corporate travel associated with remote working.Meanwhile,the trailing 12-month revenue per available room(RevPAR)has consistently increased month

294、 over month,after a pandemic low in February 2021,helped in part by the inflationary pressure on average daily room rates(ADRs).23Finally,the retail sector remained relatively resilient amid economic uncertainty.In 2023,demand grew across an array of retail subsectors,store closures slowed,and minim

295、al new supply supported occupancy.Still,retails performance was under-whelming,posting a trailing one-year return of 0.9 percent(although the sector recorded the second-strongest returns among major real estate sectors after hospitality)and returning 2.0 percent per year over the trailing three-year

296、 period.At the same time,however,retail fundamentals have continued to improve over time.Demand for retail space in the United States grew more than 18 million square feet during the fourth quarter of 2023,the 11th consecutive quarter of demand growth.24 Consequently,availability of retail space was

297、 4.8 percent in the fourth quarter of 2023,the lowest ever recorded and 160 basis points below the ten-year historical average of 6.4 percent.In such an environment,tenants have reported difficulty finding space:the trailing four-quarter leasing activity fell to 199 million square feet as of the fou

298、rth quarter of 2023,nearly 20 percent below the average of 237 million square feet recorded for 201519.42Private markets:A slower eraTransforming real estate with generative artificial intelligence Generative AI(gen AI)has taken center stage at a crucial time for the real estate industry.With soften

299、ing demand and rising cap rates,real estate firms are fast recognizing that many applications of gen AI can enhance the operating performance of assets,improve processes,and ultimately increase returns(see sidebar“Real estate use cases for gen AI”).25 For more about gen AI and its potential role in

300、the real estate industry,see Matt Fitzpatrick,Vaibhav Gujral,Ankit Kapoor,and Alex Wolkomir,“Generative AI can change real estate,but the industry must change to reap the benefits,”McKinsey Quarterly,November 14,2023.For more about its potential impact across industries,see“The economic potential of

301、 generative AI:The next productivity frontier,”McKinsey,June 14,2023.McKinsey Global Institute(MGI)estimates that gen AI could generate$110 billion to$180 billion or more in value for the real estate industry.25 AI-forward players can generate meaningful increases in net operating income(NOI)through

302、 more efficient operating models,stronger customer experience,tenant retention,new revenue streams,and smarter asset selection.Already,real estate players can enable several key use cases for gen AI:Sifting through mountains of leasing documentation.Gen AI can analyze complex lease documents,making

303、it easier for property owners and investors to find information at scale.The tool can summarize key themes,such as monthly rent and market factors,and generate tables of information based on specific parameters,like rent price per square foot.Professionals can then review the compiled information pr

304、ovided by the AI tool.Copiloting real estate interactions.Gen AI can be used to create a powerful copilotan AI-powered bot for various real estate interactions,including tenant requests and lease negotiations.The copilot can handle simple tenant requests such as routine maintenance by directly conta

305、cting the buildings maintenance staff.For more complex questions,the copilot can flag tenant needs for a specialist at a property management company.Enabling visualization and creating new revenue streams.Gen AI tools can help potential tenants visualize exactly what an apartment would look like in,

306、say,their preferred midcentury modern style or in cherrywood versus walnut finishes.This data can then be fed back into a model to predict which types of furnishings and finishes work best for different customer segments,which could improve prospect-to-lease conversion and shape future capital expen

307、diture decisions.Making faster,more precise investment decisions.Today,investment decisions are often informed through individual analysis of bespoke data pulls across sources.Gen AI can overlay this multi-faceted analysis on a list of properties for sale to identify and prioritize specific assets m

308、eeting criteria for manual investigation.Drawing architectural plans known to create desired outcomes.A gen-AI-assisted process can introduce Internet of Things sensors and computer vision algorithms that collect data points on space use,such as how customers move through a store before purchase or

309、when conference rooms are used in an office.The gen AI tool can then help develop architectural plans that are optimized to create desired outcomes in a space.Human architects and designers can work from these plans to ensure art and emotion in the design with less guesswork over whether a space is

310、purpose driven.Gen AI will not replace analytical AI;for some use cases(such as producing a rent forecast or a retention prediction),more traditional machine learning excels.Rather,gen AI is opening up never-before-possible use cases relevant to portions of the real estate value chain that technolog

311、y did not previously touch.Real estate use cases for gen AI43Private markets:A slower eraDuring a turbulent year for private markets,private debt was a relative bright spot,topping private markets asset classes in terms of fundraising growth,AUM growth,and performance.Fundraising for private debt de

312、clined just 13 percent year over year,nearly ten percentage points less than private markets overall.Despite the decline in fundraising,AUM surged 27 percent to$1.7 trillion.And private debt posted the highest investment returns of any private asset class through the first three quarters of 2023.Pri

313、vate debts risk/return characteristics are well suited to the current environment.With interest rates at their highest in more than a decade,current yields in the asset class have grown more attractive on both an absolute and relative basis,particularly if higher rates sustain and put downward press

314、ure on equity returns.The built-in security derived from debts privileged position in the capital structure,moreover,appeals to investors that are wary of market volatility and valuation uncertainty.Direct lending continued to be the largest strategy in 2023,with fundraising for the mostly-senior-de

315、bt strategy accounting for almost half of the asset classs total haul(despite declining from the previous year).Separately,mezzanine debt fundraising hit a new high,thanks to the closings of three of the largest funds ever raised in the strategy.Over the longer term,growth in private debt has largel

316、y been driven by institutional investors rotating out of traditional fixed income in favor of private alternatives.Despite this growth in commitments,LPs remain underweight in this asset class relative to their targets.In fact,the allocation gap has only grown wider in recent years,a sharp contrast

317、to other private asset classes,for which LPs current allocations exceed their targets on average.According to data from CEM Benchmarking,the private debt allocation gap now stands at 1.4 percent,which means that,in aggregate,investors must commit hundreds of billions in net new capital to the asset

318、class just to reach current targets.Private debt pays dividends 444Private markets:A slower eraPrivate debt was not completely immune to the macroeconomic conditions last year,however.Fundraising declined for the second consecutive year and now sits 23 percent below 2021s peak.Furthermore,though pri

319、vate lenders took share in 2023 from other capital sources,overall deal volumes also declined for the second year in a row.The drop was largely driven by a less active PE deal environment:private debt is predominantly used to finance PE-backed companies,though managers are increasingly diversifying

320、their origination capabilities to include a broad new range of companies and asset types.FundraisingGlobal private debt fundraising fell 13 percent to$190 billion(Exhibit 32).Fundraising declined across geographies:in North America,which accounts for over half of the global total,fundraising fell by

321、 15 percent,while fundraising in Europe and Asia declined 31 and 16 percent,respectively.Fundraising for closed-end direct lending strategies decreased 29 percent from the prior year to$91 billion.Direct lendingthe largest private credit strategy by a considerable marginhas driven the preponderance

322、of fundraising growth for the asset class over the past decade.Dollars have accrued to the strategy in search of high(floating-rate)yields,with downside protection driven by a senior position in the capital stack.However,the slowdown in PE buyout activity and wariness over the potential for increase

323、d default and loss rates may have reduced investor appetite in the current environment.Fundraising for special situations strategies declined as well,falling 39 percent to$28 billion.The decline follows the three highest fundraising years on record for the strategy from 2020 to 2022.Supply-side timi

324、ng(that is,which large funds are in market)and a backlog of dry powder are partially to blame.Exhibit 32Private debt fundraising declined 13 percent.1Excludes secondaries,funds of funds,and co-investment vehicles.Source:PreqinMcKinsey&CompanyGlobal private debt fundraising by strategy,1$billion20182

325、3 CAGR,%202223 growth,%Total12.66.729.26.0Direct lending39.49.4Special situations62.28.0Mezzanine69.53.4Distressed debt127.127.4Venture debt202248037201713113313%45Private markets:A slower eraIn contrast,fundraising for mezzanine funds increased 62 percent

326、 to$43 billion,the highest total ever raised for the strategy.Three of the four largest mezzanine managers closed a fund in 2023,collectively accounting for more than 80 percent of all fundraising for the strategy during the year.The growth of mezzanine lending since 2021 indicates that investors ma

327、y perceive the strategys flexibility to be especially relevant at this point in the credit cycle.Lastly,distressed fundraising recovered from an eight-year low in 2022,increasing 70 percent to$25 billion in 2023.The increase may reflect a belief among some LPs that higher interest rates and other ma

328、croeconomic headwinds will contribute to an improved deployment and return environment for the strategy in the near to medium term.Consistent with other asset classes,investors concentrated their commitments in 2023 with larger debt funds and managers.Eight funds of$5 billion or more closed during t

329、he year(including the largest private debt fund ever raised,at$17 billion),collectively accounting for 38 percent of total fundraising.The top 25 managers,meanwhile,captured nearly three-quarters of all fundraising last year.Private debt has exhibited a steady,gradual increase in fundraising concent

330、ration.On a trailing five-year basis,the top 25 managers in private debt captured 48 percent of all commit-ments in 2023,6 percentage points more than in 2018(Exhibit 33).This evolution is perhaps unsurprising,as performance and fee levels are lower in debt than in equity strategies,making scale mor

331、e critical to manager profitability.Scale also breeds competitive advantage:lenders with deeper pockets are more capable of offering borrowers various financing solutions,providing liquidity on short notice,and holding larger positions across various capital sleeves without taking on undue concentra

332、tion risk.Exhibit 33Private debt fundraising became more concentrated in 2023.Note:Figures may not sum precisely due to rounding.Source:PreqinMcKinsey&CompanyWeb Exhibit of Trailing 5-year cumulative fundraising,%by fund manager rank206202390230

333、8202292020209Private debtPrivate equityTop 5Long-tail managersTop 610Top 1125Top 26100Top 10125046Private markets:A slower eraAUM Private debt AUM increased 27 percent over the prior year to$1.7 trillion.North America remains the largest region,accounting for 62 percent of the total global AUM,roughly 2.4 times larger than Europe.Private debt strategies remain nascent in Asia