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Bailey McCann, Opalesque New York:

Private equity is adjusting to a new normal of higher costs of capital, lower leverage and a slower M&A market. To be successful in this environment, analysts at Morgan Stanley say sponsors may have to shift their focus to value creation and identify sources of organic revenue growth if they want to continue posting returns within the existing historical range for the asset class.

In a recent research note, analysts say that middle-market companies will likely provide the most attractive opportunities due the scalability of value creation efforts and increased exit alternatives. Focusing here will likely also provide more opportunities to put capital to work. Dry powder within private equity remains at record highs. Preqin expects global PE dry powder to surpass $1.6 trillion by year-end 2024.

"This pool of capital should provide a floor to valuations, further increasing the need to focus on value creation to drive returns," the note says.

There may also be an uptick in opportunities within growth equity. As venture-backed companies stay private for longer there is an increased need for intermediate financing at the growth equity and hybrid capital levels. Sponsors that have expertise in these areas will likely find significant demand for capital.

Private credit is also likely to get a boost in this environment. While some investors have raised questions about the durability of private credit returns given recent interest......................

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