Market Sentiments
Private equity investments in asset management hit a 3-year high
Private equity investment in asset management reached a three-year high in 2024, with firms investing $20.29 billion globally, an 89% increase from 2023. This surge was driven by consolidating the fragmented wealth management industry and strategic acquisitions to expand investment strategies and investor bases. According to Kellie Bobo of Haynes Boone, these acquisitions allow firms to grow their assets under management (AUM) in diverse asset classes and geographies.
Private equity-backed investments led to a record year of wealth management mergers and acquisitions (M&A) in the US, with 50 direct investments in US wealth managers. Consultant DeVoe & Co. reported a surge in deals targeting US registered investment advisers (RIAs) due to falling interest rates, with private equity firms involved in 78% of RIA transactions in the fourth quarter of 2024.
Europe attracted the most significant amount of private equity-backed funding in 2024, totaling around $10.34 billion, while the US and Canada recorded the highest number of deals at 89. The largest private equity-backed transaction was the $6.86 billion acquisition of Hargreaves Lansdown PLC. The largest deal was the $6.86 billion acquisition of Hargreaves Lansdown PLC by a group including CVC. Europe attracted the most funding at $10.34 billion, while the US and Canada had the highest number of deals (89).
Looking ahead, private equity investments in asset management are expected to increase in 2025, driven by the goal of democratizing access to private markets. Global wealth held by individuals eligible to invest in alternative assets is estimated at $75 trillion to $85 trillion. Additionally, dry powder, or uninvested capital, stood at $2.49 trillion as of February 2025, indicating significant potential for future investments.
Source: S&P Global
Impact of higher interest rates on private equity
The higher-for-longer interest-rate regime will continue unabated in 2025, significantly impacting private equity investments. Central banks' tightening monetary policy since 2022 has raised debt costs, challenging buyout funds that rely heavily on leverage. With buyouts' exposure to rates peaking in 2022, managers must now focus on revenue growth and operational improvements rather than financial engineering. The increasing cost of debt service has led to notable bankruptcies, including Pluralsight and Alacrity.
Venture capital and growth equity funds, which rarely use leverage, avoid direct interest-rate exposure but face valuation shifts. Public company multiples, such as forward-revenue multiples for SaaS companies, have dropped significantly since 2022, affecting private valuations. Higher interest rates result in steeper discount rates and depressed valuations, posing risks for companies raising funds or planning IPOs. However, lower valuations can benefit managers with new capital to deploy.
A diversified private investment allocation is crucial in this environment. Leveraged buyout funds, with their direct interest-rate exposure, face diminished benefits from leverage. Conversely, venture capital and growth equity strategies, which avoid debt expenses, offer diversification benefits. The late-stage growth space allows allocators to invest in venture capital at scale.
Experts discuss various aspects of private investing in 2025, including the impact of potential Trump 2.0 policies on late-stage growth, biotech, climate venture capital, and private credit. They emphasize the importance of understanding interest-rate exposure and the potential benefits of public/private collaboration in sourcing, diligence, pricing, and exiting investments.
Source: Wellington
The surge in private equity consumer deals amid optimistic economic forecasts
In 2024, global private equity and venture capital investments in the consumer sector saw a significant upswing, driven by rising economic confidence and stabilizing interest rates. This trend continues into 2025, with investors keen on analyzing and modifying consumer brand portfolios to align with market trends, mitigate risks, and drive growth. The consumer sector, characterized by rapid shifts in preferences, competitive dynamics, and supply chain challenges, presents distressed M&A and consolidation opportunities.
Strong consumer spending and a robust US job market are expected to sustain sector activity, although tariffs remain a concern. Corporate carveouts of consumer units are attracting private equity, with potential for club deals or partnerships where corporate parents retain stakes.
In 2024, the sector's deal value surged 45.8% year-on-year to $81.4 billion, with consumer discretionary goods and services accounting for $69.58 billion, up 52.6% from 2023. Consumer staples' deal value rose slightly to $11.82 billion. January 2025 saw 136 consumer sector deals worth $720 million, indicating ongoing momentum.
Education services led the consumer discretionary sector, attracting over $17 billion across 133 deals, followed by automobile manufacturers with nearly $12 billion across 51 deals. Packaged foods, the only consumer staple in the top 10, ranked fifth in deal value but topped transaction counts with 313.
Notable deals included the $14.5 billion acquisition of Nord Anglia Education Ltd. by the Canada Pension Plan Investment Board, EQT Private Capital Asia, and Neuberger, and the $5.6 billion series C round for Waymo LLC by Silver Lake Technology Management LLC and Andreessen Horowitz LLC. The largest consumer staples deal was Butterfly Enterprises' $1.97 billion buyout of The Duckhorn Portfolio Inc.
Source: S&P Global
Buy-side activities surge amid declining deal counts in private capital
Private capital firms have seen fluctuating global deal volumes and values, with deals averaging 21% of all M&A deals over the past six years, peaking at 26% in 2021. However, deal counts have decreased annually through 2024, with a 22% drop in 2022 and another 25% in 2023. Despite this, buy-side activities have increased, averaging 60% of total deal value between 2022 and 2024. Investors are cautious due to uncertainties like US election outcomes, geopolitical dynamics, and potential interest rate changes. Limited partners are pressuring for disinvestments in older vintages, while the availability of dry powder pushes for new investments, suggesting a possible market revitalization.
The technology, media, and telecommunications (TMT) sector leads in deal value and volume, accounting for 25-30% of deals from 2019 to 2024. Other significant industries include global energy and materials (GEM), financial services and insurance, and advanced industries. Regional trends show increased deal value in the Americas in 2024, with the region accounting for 49% of global deal value. EMEA remains significant, with 33% of the total deal value.
In 2025, private capital firms are under pressure to deploy dry powder reserves, with opportunities in private credit, infrastructure investments, and secondaries. Take-private deals may continue to attract investments. Lower valuations in the US may promote cross-border M&A. Firms need creative exit strategies to meet limited partners' demands for high returns. New geopolitical dynamics and regulations may further drive investments in innovation and competitiveness, particularly in Europe and the US.
Source: McKinsey & Company
Market Opportunity
The evolution of second-lien financing in private credit
Second-lien financing in private credit has evolved significantly due to changing economic conditions, borrower needs, and investor preferences. Initially a supplement to traditional bank loans, second-lien loans now address liquidity challenges, enable leveraged acquisitions, and support growth capital needs. The rise of private credit as an alternative to traditional bank lending, especially post-2008 financial crisis, has further transformed second-lien financing. Private credit managers have refined their underwriting practices, leveraging comprehensive diligence processes to mitigate risks associated with subordinated collateral rights.
Institutional investors, attracted by higher returns, have increasingly allocated funds specializing in subordinated lending, enhancing market liquidity and fostering innovation in structuring. The rise of unitranche lending, combining senior and second-lien tranches into a single agreement, exemplifies this innovation. Detailed inter-creditor agreements now govern relationships between senior and junior lenders, ensuring clarity in repayment priorities and collateral rights.
Second-lien financing has adapted to macroeconomic trends, incorporating flexible mechanisms like payment-in-kind (PIK) interest provisions and covenant-lite structures to accommodate borrower needs. Investors must understand these terms to manage risks effectively. Common pitfalls include focusing too much on interest rates, overlooking additional fees, and overcomplicating processes.
The maturation of the private credit market underscores its ability to innovate and adapt. Second-lien financing will likely remain pivotal, offering opportunities for borrowers and lenders. As the credit market tightens, second-lien loans will play a more prominent role, with regulatory developments and economic conditions shaping the market. Business development companies (BDCs) have integrated second-lien loans to balance yield generation with manageable risk, supporting small- and mid-sized businesses while offering differentiated returns to investors.
Source: Forbes
Exploring opportunities in a stable private market
The private market investing landscape is evolving due to economic shifts, investor sentiment, and structural changes. Fundraising, deal activity, and capital allocation trends show an industry facing both challenges and opportunities. Venture capital is recalibrating with valuation resets and liquidity concerns. Strategic capital deployment and navigating market inefficiencies are crucial for investors.
Capital raised declined modestly through Q3 2024, marking the third consecutive year of decline. The number of funds holding a final close dropped significantly, indicating a concentration in larger funds. Funds raising $1 billion or more accounted for 75% of all capital raised, with 85% going to experienced firms. This trend is driven by higher interest rates and LPs streamlining their portfolios.
Fundraising has been challenging despite strong public markets and demand for private markets. LPs expect liquidity, pushing funds to seek non-traditional liquidity measures. Private equity deal activity increased due to a stable capital markets environment, with add-ons and carveouts being significant. Large funds hold most of the dry powder, with some nearing the end of their investment periods.
Venture capital faces depressed exit volumes and high pressure to minimize burn rates. Despite challenges, opportunities exist due to the capital void. The environment is considered "Investor Friendly" with a high demand-to-supply ratio of capital.
Real assets, particularly private infrastructure, outpaced private real estate fundraising. Uncertainty in real estate sectors and a broader LP approach to assets like data centers and energy transition are notable. Private debt saw steady capital raising, with experienced managers preferred. Spreads declined, indicating a competitive lending environment and further narrowing is anticipated.
Overall, maintaining a broad market perspective and strategic portfolio enhancement are essential.
Source: Fiducient Advisors
Expert Opinion
The evolution of private markets by 2025
As private markets firms gear up for a busy year of dealmaking, SS&C Intralinks surveyed general partners (GPs) in the US, U.K., and Asia Pacific to understand their market outlook for 2025. The survey revealed that 78% of limited partners (LPs) expect increased deal activity, with 62% planning to expand GP relationships. GPs shared their perspectives on various aspects of the market.
Marty Sjoquist from MiddleGround Capital highlighted the focus on trade policy impacts, interest rates, and regulatory environments as key risks. He emphasized the potential benefits of protectionist policies for US manufacturing and distribution sectors. Christiaan de Lint from Headway Capital Partners noted the anticipation of more IPOs and M&A activity, stressing the importance of long-term secular themes and regulatory developments. Isaac Tak from BCK Capital Partners discussed the uncertainty in the risk environment due to the new US administration's policies.
Regarding fundraising, Sjoquist predicted a competitive environment driven by institutional investors maintaining or increasing private market allocations. David Whyte from ADM Capital pointed to growing interest in Asia, with private debt set for strong growth, particularly in the UAE.
On valuations, Partners Group anticipated near-term recovery but highlighted long-term challenges due to inflation and interest rate volatility. Sjoquist saw opportunities in advanced manufacturing and automotive sectors, driven by trends like electrification and infrastructure investment.
For value creation, de Lint compared the current environment to the post-2000 internet/telecom crash, while Whyte saw opportunities in intra-Asia trade and decarbonization. Technology's role in GP-LP communication was emphasized by Tak, who noted its impact on data distribution and engagement. Whyte highlighted the importance of quality data collection and transparency.
Overall, GPs expect a dynamic 2025, with opportunities in advanced manufacturing, infrastructure, and technology-driven communication amid a competitive fundraising environment and evolving valuation landscape.
Source: SS&C
Future Outlook
Private markets outlook in 2025
In 2025, global private markets are poised for robust performance and strategic opportunities despite ongoing geopolitical tensions. Pantheon’s investment leadership team highlights key areas of focus for the coming year, emphasizing the macroeconomic trends that will influence private markets.
Firstly, the dealmaking environment is expected to improve due to lower borrowing costs and substantial dry powder, potentially normalizing deal volumes. Although short-term uncertainties like tariffs and policy changes may slow this trend, the reduction in interest rates has positively impacted M&A activities. In 2024, global M&A deal value increased by 15% year-over-year, with private equity deal volume reaching $1.5 trillion, an 11% increase from 2023.
Secondly, the secondary market is set for sustained growth, driven by factors such as low distributions, aging portfolios, and a recovering exit market. In 2024, secondary volume hit a record $160 billion, with high levels of LP portfolio sales and GP-led opportunities. The demand for liquidity and exits is expected to continue driving strong volume in 2025.
Lastly, semi-liquid funds are becoming mainstream, with assets reaching approximately $400 billion. These funds are increasingly popular among private wealth investors due to features like immediate NAV exposure, lack of capital calls, and full recycling of distributions. These attributes reduce friction for individual investors and have applicability for institutional investors, broadening overall investor choice.
Overall, the private markets in 2025 are set to benefit from a supportive dealmaking environment, growth in the secondary market, and the mainstream adoption of semi-liquid funds.
Source: Pantheon
Emergence of private equity: Global Private Markets Report 2025
In 2024, private equity began to recover from two years of challenging conditions, marked by muted investment returns and macroeconomic headwinds such as persistent inflation and geopolitical uncertainty. The resurgence was driven by improved financing conditions and an uptick in distributions. Entry multiples increased, reflecting sponsors' confidence and the ability to sell companies at higher prices. Despite a 1.4% decline in global private equity assets under management, general partners (GPs) adapted by creating new fund structures to meet liquidity demands.
Global private equity dealmaking rebounded significantly, with a 14% increase to $2 trillion, making 2024 the third-most-active year on record. Large buyout transactions in North America and Europe saw notable growth, with deals above $500 million rising in both value and count. However, the number of private equity deals across sub-asset classes continued to decline, particularly in venture capital.
Midmarket funds ($1 billion to $5 billion) showed resilience, maintaining flat fundraising levels year over year, while larger funds faced more challenges. Limited partners (LPs) began to see growth in distributions, addressing their liquidity demands. Despite the S&P 500 outperforming private equity sub-asset classes, LPs remained confident in private equity's long-term potential for superior returns.
Operators within private equity portfolios are increasingly focused on revenue growth and EBITDA margin expansion, as leverage and multiple expansion are less likely to drive returns in the future. GPs are investing in growth and operational improvements to enhance value creation. The private equity industry, having navigated recent turbulent conditions, is emerging more resilient, innovative, and stronger, poised for continued growth and adaptation.
Source: McKinsey & Company
Private credit: The next phase
Private credit has seen significant growth over the past decade, with assets under management (AUM) quadrupling to approximately US$1.6 trillion and projections suggesting it could reach US$3.5 trillion by 2028. This asset class has consistently delivered attractive yields, even during economic downturns, and maintained low default rates. A key trend is consolidation, with large asset managers acquiring private credit firms to benefit from scale, enhanced origination, and portfolio management capabilities. For instance, BlackRock's US$12 billion acquisition of HPS Investment Partners exemplifies this trend.
Consolidation is expected to continue, enabling private credit managers to handle larger deals directly and reduce costs. Investors are making larger allocations to fewer managers, driving further growth and consolidation. The relationship between banks and private credit funds is also evolving, with banks expanding their private credit capabilities and forming partnerships with debt funds to generate new deal opportunities and earn fees.
These developments benefit borrowers by providing access to larger loans and diverse financing solutions. Consolidation simplifies financing requirements, while bank-fund partnerships offer flexible options. The syndicated loan market remains competitive, particularly for large-cap deals, but consolidation may reduce competition in private credit over time. In the mid-market space, new entrants and independent firms are focusing on smaller transactions, specialist sectors, and alternative products to differentiate themselves.
Overall, private credit is poised for continued dynamic growth, driven by consolidation, evolving bank partnerships, and a diverse range of financing solutions for borrowers.
Source: White & Case
