2025 Private Markets Outlook

A new era of growth

Where are private markets headed? What will they look like in 2030?

Everywhere we see clients seeking long-dated, profitable assets to match their long-dated liabilities. Industry estimates project private markets growing from $13 trillion today to more than $20 trillion by 2030.¹

Here are a few trends we see:

• The brightest days for private markets are still ahead, driven by higher investment activity, elevated-but-lower financing costs and greater demand for long-term capital.
• Private debt continues to expand globally, and into new avenues of finance, with wide performance dispersion depending on borrower size and sector.
• Investors can access the transformative possibility offered by artificial intelligence through infrastructure, as well as debt, private equity and real estate.
• Deal activity is rising in both the M&A and IPO markets, which should drive more exits and distributions across private equity.
• Many real estate valuations are nearing their bottoms, creating opportunities, though price recovery will take time, with wide dispersion among sectors and regions.

The race to develop next generation AI technology continues to accelerate. To support this rapid growth in AI adoption, substantial investment in supporting infrastructure, particularly data centers and power, is crucial.

Given the massive investment required to meet growing AI data center demand and the complexity of integrating power and data center development capabilities, we believe this is an opportunity set ripe for experienced infrastructure investors across digital infrastructure and energy.

Source: 1: McKinsey Data Center Demand Models, RBC BlackRock Investment Institute, BNEF, Grid Strategies, Goldman Sachs Research. Note: There can be no assurances that any forecasts or estimates will materialize.

Private debt continues to grow and cement its status as a sizable and scalable asset class for a wide range of long-term investors. Totaling more than US$1.6 trillion¹ in global AUM, it represents roughly 10% of the US$16.4 trillion alternative investment universe.

Private debt is taking on more fundings previously executed in the public markets, which increasingly focus on deals that are prohibitively large for most middle-market companies. Companies are also relying on private lenders more for financing as they stay private for longer.

The definition of private debt continues to expand as private debt investors start to participate more in asset-backed finance, a US$5.5 trillion segment in the U.S. alone, according to Oliver Wyman.²

Source: 1. Preqin, September 2024. 2. “Private Credit's Next Act,” April 2024 by Huw van Steenis and colleagues, Oliver Wyman. The Oliver Wyman analysis and estimates were aggregated from a range of sources including, but not limited to: Federal Reserve Board (Z1 tables, G19, G20 and H8); Federal Reserve Bank of New York; Federal Reserve Bank of Dallas; Bureau of Transportation Statistics (BTS); Dealogic; Conning, Inc., Conning Esoteric ABS Strategy Fact Sheet — used with permission; Finsight.com; Structured Finance Association; Boeing (Commercial Aircraft Finance Market Outlook); Secured Finance Network; Equipment Leasing and Finance Association; Morgan Stanley Research; CACIB Research; company reports and disclosures.

We see the tide turning for private equity in 2025, spurred by a more supportive rate environment and a restart of M&A and IPO activity.

A more active exit market, coupled with an increased focus from GPs on returning capital, is offering relief to investors seeking distributions. Last year saw a turning point with distributions overtaking capital calls for the first time in eight years.¹

To manage the slower exit environment of recent years, both LPs and GPs have turned to alternative liquidity structures to meet their liquidity objectives. New structures will continue to rapidly evolve, as new investors enter the market, notably in wealth. These investors are largely accessing private assets through evergreen fund structures and ELTIFs.

Source: 1. Preqin, Annual Capital Called and Distributed. Accessed on 31 October 2024. 2. FRED Economic Data, Pitchbook Q3 2024 Global PE Report. Pre-pandemic average : Q2 2017-Q4 2019. Post-pandemic average : Q1 2022 – Q3 2024.

After a challenging two-year downturn, we believe the real estate sector is now poised to benefit from a number of economic tailwinds, with both cyclical and structural trends at play in the sector.

Being a levered asset class, real estate performance is heavily influenced by interest rate movements and debt availability. The start of the easing cycle has marked an inflection point, though pricing will not respond immediately to last year’s rate cuts.

We have already started to observe improved valuations across our high-conviction sectors, especially in residential, industrial and logistics. The U.S. office sector is still the most uncertain with the highest level of negative sentiment, though many European and APAC cities are largely returning to pre-pandemic occupancy levels.

Source: MSCI. US, UK, Europe, and Australia value decline figures based on September 2022 = 100%, data as of September 2024.