U.S. private wealth clients have been weighing up the pros and cons of private equity.

Stubborn interest rates and concerns around valuations have dampened their appetite for risk, with one Spear’s columnist going as far as to suggest family offices are rethinking the long-term role of PE in asset allocations altogether.

It’s true we’re no longer in the heady days of 2021, when PE firms around the globe closed over 8,500 deals and raised a record $2.1tn. But the PE party is hardly over — on the contrary, there are plenty of signs that things are only getting started.

Recent market turbulence has created some new uncertainties, but at EQT we are keeping a firm focus on exits and creating liquidity for our clients. We currently have a growing pipeline of exits that are active or in preparation. We also see plenty more private wealth and mass affluent household cash sitting in money market and private credit funds due to higher interest rates, waiting to be unlocked as economic pressures ease. If an anticipated U.S. interest rate cut comes to pass in September, that could further increase the attractiveness of PE as an asset class.

These are the short-term pressures, but there are even more transformational forces at play.

The most seismic shift driving private wealth interest in PE — namely, the emergence of new generations who favor the sorts of thematic bets that can be difficult to access on the stock markets — is still gaining momentum. The number of family offices around the world has tripled since 2019, according to Preqin data, with many being set up in the U.S. as wealthy families ready themselves to transfer wealth to the next generations.

Meanwhile, increasing awareness of, and access to, PE will also continue to boost interest in this asset class and cascade into private wealth investing strategies.

There is now a broad swathe of wealthy individuals in the U.S. — ranging from the growing ranks of the billionaires’ club to the mass affluent class — who have access to PE investments through vehicles open to accredited investors. This means a wider client base who can dip their toes in PE at much more manageable ticket sizes.

This direction of travel can already be seen in the data. One might assume a slump in exit activity would convince investors to apply the brakes on illiquid investments. However, while PE exit activity reached a post-COVID quarterly low of $81.2bn in Q1 2024, a Citi report covering the same quarter found that U.S. family offices have, overall, been increasing their allocations.

This doesn’t mean PE firms have it easy, though. The new generations of wealthy investors we speak to don’t just want a return premium — they want investments in line with their values. They are interested in sectors that do better and provide essential services like healthcare, data and energy.

These folks are looking for the next big opportunity, too. It’s like getting ready for the first day of school in junior high; they want to figure out what the cool sneaker is going to be and get it first. They can of course do their own research, but when it comes to finding that in the private markets versus public, they will look to their advisors to help them find the right shoe and make sure it fits their investment profile, including where and how they want their generational wealth to grow. (Personal note: my shoe of choice in the early 90s was a pair of purple and teal Reebok Pumps that I saved for all summer by doing chores, so I could buy them for the first day of school.)

This is what we focus on at EQT, as we seek to grow businesses for the next generation of owners. For someone who has inherited a business or their wealth from their parents or grandparents, that’s appealing. So too, I hope, is our focus on running companies efficiently, and making sure we are already where the puck is going in terms of infrastructure, healthcare, technology, data centers, and the energy transition.

Private equity, where investment lifecycles can be as long as 10 years, provides an opportunity to invest at a stage that occurs earlier in the overall process of creating value, compared to the public markets. For private wealth investors, maybe the question shouldn’t be whether or not the PE party is over — but when they will be coming back to the dance floor, and how good your dance shoes are.