Art by Andrea D’Aquino
Hopes for a more business-friendly White House to spur mergers and acquisitions activity and bring needed liquidity to private markets has several institutional asset managers looking forward to 2025.
Falling interest rates may also bring some relief to certain private markets as global central bankers, including the Federal Reserve, loosen monetary policy. Yet there is still plenty of uncertainty to leave investors cautious, such as if the U.S. economy sputters.
Market watchers are also looking out for potential risks in private credit, as that sector booms, and in private real estate, where the weakness in office buildings persists. President-elect Donald Trump may have a pro-business view, but his “America First” agenda of increasing tariffs and possibly stricter immigration policy could bring global economic uncertainty, according to Sean Duffin , a senior investment director for capital markets research at Cambridge Associates.
“While it is unclear whether these policies will be enacted as proposed, we anticipate strong rhetoric and the potential for retaliatory measures by other countries should increase global economic uncertainty,” Duffin wrote in a report.
Liquidity Is Key
The swift pace of global interest rate hikes between 2022 and 2023 dried up liquidity, changed valuations and hampered many managers’ fundraising ability across asset classes, particularly in areas such as private equity and venture capital. Rate cuts in 2024 loosened monetary policy, but the extent of the damage from higher interest rates remains unknown, while the pace of future cuts is also unclear.
For Raphi Schorr, a partner in and the deputy chief investment officer of HighVista Strategies, the big story for 2025 is whether liquidity returns, independent of interest-rate levels.
“Liquidity is complicated thing,” Schorr says. “People use it in a lot of different ways, but one of the tests will be the M&A market. The health of the M&A market will have an impact on everything, including credit.”
Raghav Khanna, managing director for Oaktree Capital Management’s global private debt strategy, expects the fundraising environment to improve generally across private markets, particularly in private credit.
“Assuming the Trump administration facilitates an increase in M&A activity, managers could have more investment realizations that potentially lead to an increase in distributions,” Khanna said. “We expect this will drive a pickup in [limited partner] allocations.”
Private Credit Remains Active
Fundraising in many markets was challenging in 2024, but private credit fundraising remained a bright spot, especially core middle-market-sponsored direct lending. However, that has led to more competition in sponsor-backed direct lending, softening returns as spreads narrow, according to Khanna.
With the Fed cutting rates, “lower spreads combined with lower base rates aren’t a recipe for higher prospective returns,” he says.
But Trump’s election may have changed the environment in two ways, Khanna continues. First, more M&A activity may increase demand for both middle-market and large-cap sponsor-backed direct lending, possibly widening spreads and improving returns. Second, rates may not fall as much as previously anticipated if the new administration’s economic policies are inflationary.
“The path toward lower interest rates from here now seems less clear,” Khanna says.
Potential Uptick in IPOs
Private equity still grapples with the hangover from overinvestment in 2021, as assets bought just before the rate-hike cycle kicked in are too rich for institutional asset owner limited partners to achieve the exit multiples they want, which is stifling fundraising, says Tyler Adkerson, growth leader for private equity and transactional solutions at WTW.
“Money that the LPs put into those vintages is still tied up, so it’s impacting fundraising on a go-forward basis,” he says.
IPOs ≥ $50 Million Market Cap
Proceeds in billions (US$)
Number of IPOs
1,000
$160B
$142.4
750
$120B
$85.3
$78.2
500
$80B
$46.9
$46.3
$35.5
250
$40B
$30
$29.6
$18.8
$19.4
$7.7
0
$0B
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
1,000
$160B
$142.4
750
$120B
$85.3
$78.2
500
$80B
$46.9
$46.3
$35.5
250
$40B
$30
$29.6
$18.8
$19.4
$7.7
0
$0B
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
1,000
$160B
$142.4
750
$120B
$85.3
$78.2
500
$80B
$46.9
$46.3
$35.5
250
$40B
$30
$29.6
$18.8
$19.4
$7.7
0
$0B
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
1,000
$160B
750
$120B
500
$80B
250
$40B
0
$0B
2014
2016
2018
2020
2022
2024
Source: Renaissance Capital as of 12/17/2024
But a confluence of factors—including recent interest-rate cuts, hopes for improved M&A activity and general partners starting to return money to LPs in the secondary markets —has Adkerson “cautiously optimistic” for 2025. The few IPOs launched in 2024 performed well, so if the economy and markets stay strong, IPOs could pick up in the second half of 2025, although he is not looking for a wave of companies going public. He still expects private equity to use secondary markets, joint ventures and continuation vehicles as popular ways to provide exit opportunities for LPs.
According to HighVista’s Schorr , hedge funds are likely to continue to look to listed small- and mid-cap companies to take advantage of market inefficiencies, since the large caps are dominated by artificial intelligence, weight-loss drugs and the indexes. The highly leveraged, tightly risk-controlled multi-strategy funds that invest just outside the mainstream will continue to attract most hedge-fund capital, he adds.
At least one endowment is shifting away from hedge funds and using an options-based exchange-traded-fund strategy to mitigate risk, according to Bloomberg. The University of Connecticut’s UConn Foundation sold its hedge fund position in the endowment’s $634 million investment portfolio and replaced it with buffer ETFs. Those ETFs use options to limit losses but cap gains.
Real Estate, Infrastructure Have Promise
AI’s influence is seen in these sectors as well, as demand for data center real estate is projected to increase as the macro digitalization theme affects many industries, according to Nuveen experts.
Donald Hall, global head of real estate research for Nuveen, also notes that with interest rates off their peak, certain commercial real estate segments have bottomed, such as medical office and senior housing buildings. Those sectors will benefit from long-term demographic trends, and he prefers locations with growing, educated and diverse populations. Office real estate still has room to fall, he adds.
Justin Ourso, global head of infrastructure for Nuveen, expects continued global investments in the transition to clean energy, most notably in solar power, battery storage and offshore wind power. Even in the U.S., green energy buildouts should continue.
“Despite political shifts, we expect capital to continue flowing toward profitable investments,” Ourso says.
Risks to Outlooks
Market shocks always upend year-ahead forecasts, but uncertainty can cloud predictions, and uncertainty about the U.S. economy lurks in the background.
With fewer market participants expecting a recession, a slowdown in growth or even a mild recession could hamper private markets, Adkerson says, making some private companies hesitant to launch IPOs until later in the year.
Some market participants are also looking at potential risks to the private credit boom. The International Monetary Fund estimated the global market at about $2.1 trillion in 2023, much of it in North America.
S&P Global Market Intelligence research recently raised concerns about the market’s opacity. Near-record new lending in 2024 was easily absorbed, but with credit default swap spreads trading near multi-year lows, it suggests this new activity is not yet reflected in the market’s view of credit risk. S&P is also concerned that private and public credit are becoming intertwined, as banks seek new partnerships and fund managers attempt to access public markets with new investment vehicles.
Involving more individual investors in private credit creates the problem of headline risk if people are wiped out because of a lack of regulation, Adkerson says.
“Historically, whenever it's an individual and not an entity that's getting harmed, it creates more of a problem,” he says.
Tags: Cambridge Associates, Donald Hall, HighVista Strategies, Justin Ourso, Nuveen, Oaktree Capital Management, Raghav Khanna, Raphi Schorr, Sean Duffin, Tyler Adkerson, University of Connecticut’s UConn Foundation, WTW