Moonfare
What falling interest rates mean for private equity investors
White paper
What falling interest rates mean for private equity investors
December 4, 2024
8 pages |arrow icon7

About the report

In 2024, key central banks, including the US Federal Reserve and the European Central Bank, initiated interest rate cuts. This marks a significant shift, as lower rates typically stimulate increased borrowing and lending, driving more activity in financial markets and supporting overall economic growth. The resulting boost in liquidity can serve as a catalyst for GDP expansion.

Taking a medium-term perspective we believe that this monetary easing will also have significant, positive implications for private assets. This report outlines why the path to lower rates is a welcome stimulus.

Key takeaways

  • Central banks are shifting toward looser monetary policies, which is expected to positively impact private equity dealmaking and portfolio management.
  • Lower interest rates typically lead to cheaper leverage, improved cash flows for portfolio companies, higher valuations and improved exit opportunities.
  • While the full effect of lower rates on private equity might take some time to materialise, the positive psychological impact on markets should not be underestimated.
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