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Bailey McCann, Opalesque New York:

Private equity managers and their portfolio companies have tempered expectations for interest rate cuts in the back half of the year but are still focused on doing deals where possible, according to a new report from accounting firm BDO.

Private equity has grown accustomed to the current cost of capital and is optimistic that the Federal Reserve will cut rates as early as September. It is no longer a top challenge,the report says. Sellers are also seeing lower valuations as buyers identify risks in the due diligence process. Both of these trends are impacting deal volume but data shows that investment teams are still thinking through ways to get deals done.

The deal landscape continues to inch toward optimism, and fund managers are exploring their options for exits. 57% selected sales to strategics as a path they would pursue. A year ago, just 33% of funds said they were going to pursue corporates for exits.

However it's too early to tell if this optimism is warranted. Private equity managers expressed the same cautious optimism in the second half of last year when BDO conducted this survey and the M&A environment failed to really rebound then. However, some fund managers may be another year closer to the end of their holding or investment periods and may start having to make tough decisions about exits and new investments.

"With LPs' need for distributions and portco holding periods extending beyond six years, we bel......................

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