Q3 | Torys Quarterly•Summer 2024

Recent trends in U.S. private funds

As institutional investors and fund sponsors endure the ongoing slowdown in exit activity and its effect on fundraising and liquidity, we have observed the following trends and opportunities in the U.S. private funds market.

1. Fundraising

The U.S. private funds market continues to experience a slowdown in portfolio company exits, which has made it more difficult for sponsors to return distributions to investors, who in turn have less available capital to commit to new funds. The ability to deploy new capital has been particularly difficult for certain institutional investors that are subject to asset allocation targets, as many continue to remain overweighted in the private markets. This phenomenon is referred to in the market as the “numerator effect” (standing in contrast to the “denominator effect” felt in 2022 after investors found themselves overweighted to private equity following the decline in their exposure to public market securities).

According to PitchBook’s Global Private Market Fundraising Report1, the fundraising challenges have not been felt evenly among all asset classes, resulting in the following breakdown:

  • Private equity has remained steady from a fundraising perspective. Particularly in the U.S., private equity fundraising accounts for the largest market share in 2024, representing approximately 50% of the market.
  • As in 2023, secondaries remain a popular asset class (which is unsurprising given the difficulty finding exit routes, as investors are looking to find liquidity relative to their holdings and sponsors are looking to find liquidity through continuation vehicles) and represent the second largest in the market at approximately 11%.
  • Venture capital fundraising has observed a persistent slow-down, now representing approximately half of what it had represented in the market in 2022.
  • Funds focused on private debt, real estate and real assets have generally experienced a lull in 2024 but have not departed materially from their historic market share.
  • Funds of US$1 billion or larger have fared better in this challenging fundraising market relative to mid-size, smaller and newer funds, as investors have more readily flocked to established, well-known sponsors and larger funds, with such funds representing approximately 80% of fundraising figures in the first quarter of 2024. 

Despite this, investors remain committed to private markets and activity seems to have experienced an uptick in the second half of 2024 as institutional investors work to maintain and, in some cases, increase allocations.

2. Retail investing

Given the challenging fundraising market, some fund sponsors are beginning to set their sights on a largely untapped source of additional capital—retail investors (i.e., high-net-worth individuals and family offices). According to Bain & Company (see Figure 1), retail investors hold approximately 50% of global assets under management but represent less than 20% of assets under management held by private funds.

The interest is mutual, as retail investors are similarly looking for ways to participate in private funds, which can offer more attractive returns relative to the public markets and provide greater diversification.

A separate group, composed of various intermediaries (such as banks, financial advisers and digital platforms) that sit between fund sponsors and retail investors also has skin in the game, as they see the potential for a substantial new stream of fee income linked to an expansion of retail investors’ participation in the private markets.

Figure 1: Global wealth by investor type, 2022
Source: Bain & Company. Global Private Equity Report 2023 – Why Private Equity Is Targeting Individual Investors.

The growing interest in retail investing is benefiting from a number of recent advances in regulation, innovation and technology that are lowering the hurdles that have generally blocked broader participation. Certain regulators are showing signs of a willingness to expand access to the private markets. For example, in the U.S., the Securities and Exchange Commission recently amended its definition of “accredited investor” to include individuals with sufficient investment “knowledge and expertise” (e.g., an individual with professional certifications, designations or credentials) who may not otherwise satisfy the existing wealth-based criteria. In addition, sponsors are using innovative fund structures that comply with existing applicable regulations but are available to more of the retail market. At the same time, improvements in technology largely being driven by fintech firms, including user-friendly digital platforms, are making it easier and cheaper to facilitate retail participation.

The largest fund sponsors are generally leading the push into the retail space given they have the most resources at their disposal, with many developing new products that are geared specifically for retail investors by offering greater liquidity. For institutional investors, a potential concern could be sponsors seeking greater flexibility to allocate on-strategy investments to retail vehicles over institutional vehicles, as well as an overall reduction in co-investment opportunities if there is a surplus of capital available to close deals.

3. Continuation vehicles

Traditional investment exit routes remain limited and, as such, we continue to see an uptick in creative and longer-term structures to increase exposure to portfolio companies. GP-led secondary transactions or continuation funds, which are liquidation transactions by a sponsor that enable the sponsor to continue to manage a portfolio investment or group of portfolio investments, have remained a popular construct, as well as an ongoing topic of conversation in the market. Continuation funds were historically viewed as a means of transferring unrealized investments out of a fund’s portfolio near the end of its term (often implying the sponsor’s or the fund’s distress), but now they are viewed as a means of extracting additional value from well-performing investments or a means of giving the sponsor more time to develop an asset with an influx of new capital.

Improvements in technology largely being driven by fintech firms, including user-friendly digital platforms, are making it easier and cheaper to facilitate retail participation.

In connection with the formation of a continuation fund, the sponsor transfers one or more portfolio companies from its existing fund to a new special purpose vehicle, and the existing fund investors are given the option to reinvest the proceeds from—or roll their interest in the relevant portfolio companies into—the continuation fund or to otherwise receive a cash distribution in respect of their interest in the continuation fund (and such a cash component is funded by new investors in the continuation fund). Often there is a new commitment associated with rolling interests to be considered. Sponsors may look to bake preapproval of a GP-led secondary into their fund documents and, on execution of the continuation vehicle, will look to reset fees and carry paid by, at a minimum, new investors in the vehicle. Investors, for their part, are hesitant to preapprove any such transactions and will look for both an advance Limited Partner Advisory Committee consent requirement, as well as the provision of a fairness or valuation opinion relative to the pricing on the transaction.

While GP-led secondary transactions continue to gain traction in the marketplace, they require careful consideration from both the sponsor and the investor side and can benefit all parties involved when done properly.

4. NAV facilities

As institutional investors and fund sponsors continue to navigate the slowdown in exit activity, net asset value based credit facilities (NAV facilities) are proving to be a useful liquidity solution and are starting to become more mainstream in the market. Unlike subscription line facilities, which are secured by investors’ unfunded commitments and intended to be used as a cash management tool to smooth out capital calls, NAV facilities are secured by the value of a fund’s underlying assets and can be used for a variety of purposes, including to pursue growth opportunities and follow-on investments, support distressed portfolio companies and facilitate early distributions to investors.

Despite their rapidly rising popularity, NAV facilities remain a novel concept for many fund investors. Generally speaking, sponsors willing to take the time to communicate with investors regarding their intentions for using NAV facilities, why they may be a better solution than other liquidity options, and what the proceeds will be used for, are having greater success getting investors comfortable with the enhanced borrowing flexibility. Investors also typically expect to see some parameters in the partnership agreement around when the NAV facility can be used (e.g., after the fund has deployed substantially all of its unfunded commitments), how much can be borrowed under the NAV facility (e.g., as a percentage of aggregate NAV) and for what purpose the borrowed amounts can be utilized.

Sponsors willing to take the time to communicate with investors regarding their intentions for using NAV facilities are having greater success getting investors comfortable with the enhanced borrowing flexibility.

In particular, the question of whether sponsors should be permitted to use NAV facilities in order to make early distributions to investors (and/or to pay themselves carried interest) remains a controversial topic in fund negotiations, as investors typically seek to prohibit this practice due to concerns around the cost associated with such early distributions (i.e., significant interest expenses that will ultimately eat into their returns), unnecessary risk being put on the fund’s portfolio and the possibility of sponsors seeking to use the flexibility to boost their performance metrics.

5. SEC rules vacated

On August 23, 2023, the Securities and Exchange Commission (the SEC) released final rules under the Investment Advisers Act of 1940 (the Advisers Act), focused on private fund disclosures and sponsor practices (the Final Rules). According to the SEC, the Final Rules were designed to protect investors in private funds and prevent fraud, deception, or manipulation by investment advisers. Shortly following their adoption, the Final Rules were challenged by six associations representing private fund managers (the Private Fund Managers) in the United States Court of Appeals for the Fifth Circuit (the Fifth Circuit). On June 5, 2024, the Fifth Circuit vacated the Final Rules in their entirety based on the court’s determination that the SEC did not have statutory authority under the Advisers Act to formulate the Final Rules. As such, the court never ruled on the substance of the Final Rules themselves. 

The market will be watching the SEC to see whether they appeal the ruling. To date, there is no indication that they intend to do so.


  1. PitchBook, Q1 2024 Global Private Market Fundraising Report (2024), https://pitchbook.com/news/reports/q1-2024-global-private-market-fundraising-report.

Le mois dernier, le Canada a publié sa première Stratégie industrielle de défense (la Stratégie), qui souligne l’engagement du Canada à développer une base industrielle de défense solide et à stimuler la croissance économique. Ces efforts pourraient aussi comprendre le renforcement de l’état de préparation à la biodéfense et aux contre-mesures médicales, ce qui pourrait constituer des débouchés pour le secteur canadien des sciences de la vie en raison de l’importance accordée aux capacités nationales en ce sens et de la nécessité d’atténuer les risques d’urgences sanitaires.

Développement de contre-mesures médicales au Canada

Comme indiqué dans les bulletins précédents, le quatrième pilier de la Stratégie est axé sur la « sécurisation des chaînes d’approvisionnement pour les intrants et les biens clés » par le renforcement de la production nationale et le stockage de ressources. L’accent est mis tout particulièrement sur les contre-mesures médicales, en précisant que nos « alliés ont établi un lien explicite entre l’état de préparation à la biodéfense et aux contre-mesures médicales et leur sécurité économique et nationale, en élaborant de nouvelles stratégies et de nouveaux mécanismes pour faire progresser ces travaux ». Les contre-mesures médicales désignent divers produits réglementés pouvant être utilisés pour protéger la population lors d’une situation d’urgence de grande ampleur, comme l’éclosion d’une maladie ou une attaque impliquant des armes chimiques, biologiques ou nucléaires. Il peut s’agir de vaccins, de médicaments thérapeutiques et produits biologiques, de dispositifs de tests diagnostiques, des équipements de protection individuelle ou industrielle, et d’autres dispositifs médicaux. Les contre-mesures médicales sont essentielles à la réduction et à l’atténuation des dommages lors d’une urgence de santé publique.

Exploiter les voies réglementaires mises en place lors de la pandémie de COVID-19

Pendant et après la pandémie de COVID-19, le Canada a mis en place plusieurs nouvelles voies réglementaires comme mécanismes d’accélération des approbations de produits médicaux, ce qui pourrait offrir au gouvernement des options pour déployer des contre-mesures médicales afin de faire face aux risques pour la santé publique. Au début de la pandémie, Santé Canada a émis diverses ordonnances provisoires pour permettre l’importation et la vente de médicaments et de dispositifs médicaux qui n’avaient pas eu l’approbation des voies réglementaires traditionnelles. Or, Santé Canada a plutôt fait confiance aux voies d’approbation réglementaire et de l’exemption de certaines exigences en homologation de produits des pays impliqués dans la transaction. Beaucoup de ces règles provisoires ont depuis été officiellement intégrées à la réglementation en vertu de la Loi sur les aliments et drogues et ont été appliquées bien après la COVID-19. Conformément au Règlement sur les aliments et drogues, Santé Canada tient à jour la Liste des maladies qui menacent la santé publique et utilisera une procédure d’autorisation modifiée pour les médicaments d’urgence de santé publique pouvant traiter les affections figurant sur la liste. De même, le Règlement sur les instruments médicaux a établi une liste d’instruments médicaux répondant à un besoin urgent de santé publique, ce qui permet à Santé Canada d’autoriser la commercialisation de ces instruments de manière accélérée. Ces outils réglementaires sont utilisés automatiquement quand une situation médicale présente un grand risque pour la santé publique au Canada et nécessite une action immédiate pour contrer ce risque.

Le rôle de la Stratégie dans le renforcement du régime réglementaire de la santé au Canada

La stratégie prévoit que le Canada adoptera une approche proactive en matière de planification en amont des crises sanitaires. Le gouvernement entend s’assurer que les produits médicaux sont déjà disponibles au Canada afin qu’ils puissent être distribués rapidement en cas d’urgence. D’autres modifications récentes au Règlement sur les aliments et drogues permettent de prépositionner au Canada tous les médicaments d’urgence en santé publique, ce qui signifie qu’ils peuvent être importés dans des installations d’entreposage canadiennes avant que leur mise sur le marché n’ait été autorisée. La Stratégie s’appuie sur ces fondements, en faisant référence à l’organisme existant Préparation aux crises sanitaires Canada (PCSC), un organisme opérationnel spécial au sein d’Innovation, Sciences et Développement économique Canada (ISDE), et à un nouveau Fonds des sciences de la vie, lesquels « collaborent avec des partenaires internationaux et de soutenir l’élaboration et la production de contre-mesures médicales ». PCSC supervise la Stratégie en matière de biofabrication et de sciences de la vie du Canada, qui vise à développer un secteur national des sciences de la vie fort et compétitif doté de capacités de biofabrication de pointe, en mettant l’accent sur la capacité à se préparer et à faire face aux futures priorités et crises sanitaires. Dans cette optique, il y aura des occasions pour les fabricants de nouer des collaborations de recherche et des accords commerciaux ou d’approvisionnement liés aux contre-mesures médicales financées par des programmes fédéraux.

Étroitement lié aux capacités nationales, le pilier III de la stratégie implique « Investissement ciblé pour renforcer un secteur canadien de la défense novateur », avec la promesse que le gouvernement fédéral « soutiendr[a] la recherche et le développement, protéger[a] la propriété intellectuelle, soutiendr[a] les petites et moyennes entreprises, investir[a] dans les compétences et la formation, et encourager[a] les exportations afin de créer un secteur de la défense agile et concurrentiel à l’échelle mondiale ». La nécessité de favoriser le développement de la propriété intellectuelle (PI) et la conservation des droits du Canada est mentionnée à plusieurs reprises dans la Stratégie. Par exemple, la Stratégie prévoit l’établissement de partenariats officiels avec l’industrie canadienne qui « [assureront] la propriété et le contrôle nationaux de la propriété intellectuelle (PI) et des capacités essentielles. » La Stratégie reconnaît l’immense talent des établissements canadiens et la précieuse recherche qui y est menée actuellement et qui est déjà financée par des subventions de recherche d’organismes tels que le Conseil de recherches en sciences naturelles et en génie et les Instituts de recherche en santé du Canada, et fait aussi référence à l’engagement de 1,6 milliard de dollars pour de nouveaux fonds de recherche dans le budget de 2025. Cette prise de conscience de la nécessité de promouvoir et de soutenir l’innovation au Canada laisse présager des possibilités de financement, notamment dans les domaines où le Canada accuse un retard en matière de production nationale et où des engagements d’investissement et de fabrication au Canada peuvent être pris.

Prochaines étapes

Dans les prochains mois, nous prévoyons que le gouvernement du Canada publiera d’autres directives et des mesures de suivi. L’équipe de défense des conservateurs poursuivra sa couverture de perspectives sur la défense au Canada en publiant une analyse supplémentaire pour donner des précisions sur l’incidence de la Stratégie sur de multiples secteurs.

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