Industry Trends
Private credit and secondaries lead alternative asset allocation trends
Limited partner investors are shifting towards more defensive investment strategies amid growing macroeconomic uncertainty, with plans to increase allocations to private credit and secondaries. Coller Capital’s latest Global Private Capital Barometer report, surveying 110 private capital investors managing US$2 trillion in assets, reveals that 45% of LPs plan to increase private credit allocations, up from 37% six months ago, and 37% plan to increase secondaries allocations, up from 29% in December 2024. Asia-Pacific LPs show the strongest interest in alternative investments, with 67% planning to expand allocations overall, and 64% increasing exposure to secondaries. Geopolitical instability and trade tensions have heightened focus on geopolitical risk, with 44% of global LPs and 64% of Asia-Pacific LPs emphasizing this in portfolio construction.
Secondaries transaction volume reached US$160 billion in 2024, with strong growth expected. Two-thirds of LPs anticipate increased private credit GP-led transactions, particularly North American investors (74%). Private equity secondaries market activity is robust, with over half of global LPs likely to buy or sell assets in the next two years. Continuation vehicles, especially single-asset structures, are performing well, with 66% of Asia-Pacific LPs reporting positive performance.
New manager formation is expected to outpace industry consolidation, driven by high performers from established teams. Evergreen vehicles are gaining traction among institutional LPs, with significant interest from Asia-Pacific investors. Private equity firms are increasingly collaborating with celebrities to boost brand awareness. Jeremy Coller and Peter Kim of Coller Capital highlight the growing interest in private credit, secondaries, and evergreen structures amid geopolitical uncertainty, reflecting LPs' adaptability and long-term optimism.
Source: The Asset
Global M&A trends in private equity
Despite recent market volatility and policy uncertainty, private equity and principal investors maintain a strong appetite for dealmaking, focusing on profitable businesses with solid fundamentals. However, dealmakers are becoming more selective and sometimes pausing. Large PE funds are expanding internationally, particularly in Europe, and using AI to improve operational efficiency. Deal volumes and values have risen significantly, with notable deals like GTCR's sale of Worldpay to Global Payments for $24.25bn. Exit activity has also increased, driven by secondary transactions and continuation funds, though the backlog of portfolio companies continues to grow.
In Japan, low interest rates and rising shareholder activism are creating opportunities for PE investments. Europe attracts investors due to lower valuations and increased government spending, with Blackstone Group planning to invest at least $500 billion in the region over the next decade. The growth of private credit is another significant trend, with large PE players developing capabilities and making strategic acquisitions. AI is being deployed to enhance deal processes and operational efficiency, with funds creating AI blueprints for portfolio companies and using AI research agents for deal sourcing.
Sector convergence is a key theme, with private capital funding projects that bring together technology, energy, and infrastructure firms. Sovereign wealth funds are also playing a role in this trend, particularly in large-scale data center projects. PE groups are increasingly targeting retail investors in the US through 401(k) retirement funds, with several large groups launching tailored investment products. The private credit market has grown rapidly, with significant fundraising and the emergence of hybrid credit funds.
PE and principal investors are expected to drive M&A activity in the coming months, leveraging their substantial dry powder to act decisively amid ongoing market uncertainties.
Source: PwC
Five key trends in private credit
The private credit market is experiencing significant growth, driven by its role as a complement and diversifier to traditional credit investments. This expansion is largely due to banks retreating from leveraged credit markets, creating opportunities in sectors intersecting public and private markets. The addressable market for private credit exceeds US$30 trillion, with growth expected in areas beyond traditional leveraged corporate debt.
Key themes for 2025 include the convergence of public and private markets, which offers flexible structuring for borrowers and opportunities for venture-backed companies to stay private longer. This trend is also evident in broadly syndicated loans (BSL) and middle-market direct lending (MMDL), where demand alternates based on favorable terms. Investors are diversifying public-market exposures and capturing illiquidity/complexity premia in private credit markets, with interval funds growing significantly.
AI's impact on private credit is notable, with increased demand for data storage, infrastructure, and real estate to support AI technologies. Private debt will fund growth companies and infrastructure projects, requiring asset-backed loans and high-quality utilities.
Banks continue to play a crucial role in private credit markets despite disintermediation trends. They provide financing, distribute private credit products, and leverage origination and risk-management expertise.
Higher interest rates will stress lower-quality credits, but investors focused on high-quality, fixed-rate assets may benefit. Strong financial covenants are essential, particularly in middle-market direct lending, to protect lenders and renegotiate terms before defaults.
Overall, the private credit market is broadening its scope, requiring investors to have a holistic view, deep credit underwriting capabilities, robust resources, and long-term relationships to navigate opportunities and risks.
Source: Wellington Management
Mid-Year Review
2025 midyear market outlook
The 2025 Midyear Market Outlook highlights the persistent resilience of private markets amid global geopolitical changes and public market volatility. The first half of 2025 saw private equity deal values rise to $495 billion in Q1, a significant increase from Q4 2024 and Q1 2024. Despite lower liquidity, secondary transactions and co-investments are thriving, with a $4 trillion backlog in global buyout portfolios. Fundraising remains challenging, with a sustained pick-up in exits expected later in 2025.
In North America, private equity deal activity is robust, with US venture capital deal value increasing by 19% in Q1 2025, driven by large AI deals. However, VC fundraising has slowed due to lower liquidity. Europe saw improved investment values in early 2025, but uncertainty from tariff announcements has reduced investment and exit activity. The region's fragmented company landscape offers strong consolidation potential.
APAC markets showed strong private equity activity, with significant increases in investments, fundraising, and exits. The region is emerging from its correction cycle, with a focus on delivering more liquidity to LPs through various exit strategies.
Private markets are proving durable in unpredictable times, with geopolitical tensions, de-globalization, and AI impacting business models. Diversification in portfolios is essential, with private markets offering a broad range of investment opportunities. Infrastructure assets under management have grown significantly, with projections indicating continued growth. The resilience and low correlation of infrastructure with other asset classes make it an attractive investment during uncertain times. Overall, private markets are expanding, providing critical diversification and enhancing portfolio performance.
Source: HarbourVest
Private equity midyear report 2025
The private equity market has remained resilient despite global tariff turbulence, but pressures to find exits, distribute funds, source fresh capital, and invest continue to mount. The first half of 2025 saw contrasting quarters: a strong start with open credit markets, cheaper debt, controlled inflation, and declining interest rates, leading to high deal value and notable transactions like Sycamore Partners’ $23.7 billion purchase of Walgreens Boots Alliance. However, the second quarter experienced a slowdown, with deal value and count dropping significantly, and the IPO market essentially shutting down due to tariff turmoil. Liquidity issues are exacerbated, with slow distributions impeding fresh fund-raising and GPs struggling to meet return targets.
LPs are pushing for full exits and turning to the secondaries market for liquidity. Fund-raising remains challenging, with a decline in the average size and number of funds closing, and hopes for recovery pushed to 2026 or beyond. The mismatch between demand and supply persists, with private wealth potentially easing the gap. Predictable income-generating assets are gaining appeal amid trade-related volatility. North American private equity assets are significantly larger than Europe’s, reflecting broad shifts in investor exposure. GPs need to adopt a systematic approach to fund-raising and prioritize improving earnings at portfolio companies through cost control and sales acceleration. Operating leverage and clear evidence of EBITDA growth are crucial for convincing buyers. Despite uncertainty, opportunities exist for proactive buyers, and momentum could return quickly if tariff uncertainty dissipates. Leaning into the turbulence may be the best option for navigating 2025’s challenges.
Source: Bain & Co.
US deals 2025 midyear outlook
In the first half of 2025, private equity activity remained subdued due to high interest rates and extended holding periods, which have reshaped deal economics. Despite strong investor interest, sponsors face challenges in unlocking value in a high-cost capital environment. Achieving target internal rates of return (IRR) now requires significantly higher earnings growth. For instance, a 20% IRR with a 7% interest rate and a seven-year holding period necessitates 4.2% annual earnings growth, compared to 1.7% with a 3% interest rate. Consequently, funds must create twice the enterprise value to achieve the same IRR as before.
Deal behavior reflects this recalibration, with concentrated activity in sectors aligned with long-term growth trends or asset-light models generating resilient cash flows. Exits remain difficult, increasing pressure on sponsors to manage aging portfolios actively. Liability management exercises (LMEs) have surged, indicating rising financial stress and a shift toward amend-and-extend strategies to preserve optionality and manage maturities.
As the second half of 2025 approaches, reliance on liability management tools, such as amendments and distressed exchanges, is expected to grow. These strategies aim to buy time, manage liquidity, and avoid defaults. Traditional exit options like IPOs and strategic sales are limited, leading firms to explore continuation vehicles and secondaries, which pose new challenges in pricing, governance, and limited partner (LP) appetite.
Top performers will distinguish themselves by rethinking portfolio strategy, focusing on commercial reinvention, pricing optimization, sales effectiveness, and AI-driven productivity. Sector selectivity, particularly in enterprise software, healthcare platforms, and tech-enabled services, will be crucial. Operational excellence and strategic execution beyond capital deployment are essential to drive returns and prepare portfolios for future exit opportunities.
Source: PwC
Market Sentiments
Optimizing private equity exits: Strategies for data and talent readiness amid market uncertainty
Private equity firms globally hold over 30,000 assets worth US$4.1 trillion, with 35% held for more than six years, amid significant geopolitical and macroeconomic volatility. The EY Private Equity Exit Readiness Study 2025 reveals that 78% of firms have held assets beyond their typical five-year horizon, with 46% exiting five or fewer assets since 2018. Despite market uncertainty, firms are optimistic about exiting within one to two years and are focusing on exit readiness to optimize returns. Strategic buyers, private equity, and IPO investors have tightened diligence standards, emphasizing the importance of early exit preparations, with 88% of firms undertaking targeted activities during an asset’s hold period.
Key exit challenges include data readiness, with 65% of firms struggling to capture value creation in exit EBITDA and 41% lacking data granularity. The finance function faces pressure, with 63% citing CFOs' lack of exit experience as a top challenge and 46% reporting insufficient resources. To mitigate talent challenges, firms should conduct early management rehearsals, quantify operational capabilities, enhance management preparation, and build financial planning and analysis capabilities.
Data readiness is crucial, with firms needing to provide granular data to support the equity story and track value creation initiatives. Typical data challenges include under-investment in data integration and proliferation of IT applications. Preparing with data readiness activities can promote exit valuations by leveraging data for equity stories, tracking value creation, and reducing diligence surprises. Reassessing exit preparation strategies around data and talent readiness is critical for capturing targeted returns, ensuring firms are ready to capitalize on transaction opportunities.
Source: EY
Market opportunity/challenges
Venture capital targets AI innovators amid private equity's infrastructure investments
The flow of private capital into AI is being filtered by risk, with venture capital and private equity investors targeting different areas within the booming industry. Venture capital is competing to invest directly in AI companies, while private equity is focusing on the infrastructure supporting AI's expansion, such as datacentres. Private equity-backed datacentre M&A reached $18.15 billion globally in 2024, the highest in five years. Private equity prefers lower-risk investments with stable returns, while venture capital aims for higher-risk, higher-reward investments in young companies with potential market footholds. Between 2020 and 2024, private equity and venture capital firms invested $63.97 billion in AI via M&A and $216.51 billion through funding rounds. OpenAI LLC raised $40 billion in March 2024, the largest investment targeting AI companies since January 2024. Private equity's picks-and-shovels strategy is driven by cash flow considerations, favouring mature businesses over smaller AI companies with less positive cash flow. Datacentres are seen as long-term safe havens for investments, with demand driven by cloud services, social networking, and digital services, further boosted by generative AI. Private equity-backed deals have dominated datacentre transaction value since 2022, with the $16.13 billion acquisition of Air Trunk Operating Pty. Ltd. being the largest since January 2024. Seven of the ten largest private equity and venture capital investments in datacentres were through funding rounds, suggesting venture capital investors may be hedging their bets with more predictable returns from datacentres while making riskier investments elsewhere.
Source: S&PGlobal
The crucial role of private capital in shaping future infrastructure
To fund the future of capital markets, significant investment in infrastructure is needed now, particularly in datacentres, digital infrastructure, and new power supplies to support advancements like tokenization and AI. While banks have traditionally funded infrastructure, financing methods now include a mix of public and private options. Public capital markets suit mature industries, but their volatility may not align with long-term infrastructure demands. Private markets are increasingly funding infrastructure through asset-based finance, offering predictable cash flows and flexibility. Private credit funds have become crucial, especially in the energy transition sector, compensating for banks' reduced lending due to rising interest rates and tighter standards. Private equity and venture capital investments in renewable energy have risen, with interest expanding to biogas, biofuels, and carbon-removal solutions. Financing requirements vary, especially for projects outside traditional banking parameters. The demand for energy to power AI's digital infrastructure presents opportunities for private credit. Datacentres, essential for AI, are attracting investment due to their growth potential and stable cash flows. Advanced economies lead in datacentre development, but emerging economies are becoming targets. Sustainability-linked bonds could fund green initiatives in datacentres. Private credit offers flexible capital solutions for datacentre projects, attracting alternative asset managers and life insurers. Public markets fund low-carbon companies, but early-stage technologies may need private market creativity. Geopolitical factors and the need for energy transition capital in emerging markets add complexity. Private investors, with longer investment horizons, may better support long-term projects.
Source: S&P Global
Challenges and opportunities in alternative investments
Alternative investments, which include private equity, private real estate, private credit, hedge funds, and digital assets, have grown in popularity, with total assets under management surpassing $33 trillion. Despite this growth, alternatives have underperformed publicly traded equivalents for the third consecutive year. The share of alternatives in the total asset universe has decreased to 15.2% in the current quarter. Fundraising has also been disappointing, tracking below $1 trillion annually, the weakest pace since 2016.
Private equity returns improved to 7.3% in 2024 but still lagged behind listed equity returns. Venture capital returns were modest at 3.6%, reflecting ongoing headwinds. Trade policy uncertainty has negatively impacted private equity, delaying investment decisions. However, structural factors such as re-shoring supply chains and energy security could improve the outlook over the longer term.
Private credit markets have also underperformed public markets, with returns of 8.3% in 2024 compared to 8.7% for high-yield bonds. Private credit pricing has held steady, and fundraising jumped to $59 billion in the first quarter of 2025, driven by Europe. Hedge funds have delivered disappointing returns year-to-date, with negative alpha generation. However, J.P. Morgan Research remains positive on the sector due to evolving macroeconomic and policy changes.
Commercial real estate shows optimistic prospects with modest capital growth and improved sales volumes. Tariff uncertainty has temporarily slowed transactions, but demand for warehouses may increase due to global trade reorganization. Residential property is expected to be relatively immune to tariffs unless a deep recession occurs. Overall, alternative investments face challenges but have potential opportunities in specific sectors.
Source: JPMorgan
