The road ahead: 2025 private markets outlook

The macroeconomic environment, particularly the interest rate landscape, remains a critical factor influencing all investment decisions. We are in the early stages of a rate-cutting cycle, which has already had a positive impact on certain asset classes, notably US real estate, where we’ve seen sentiment improving significantly over the past quarter. However, the upward movement in long-term rates, exacerbated by recent market reactions to the US election, continues to pose challenges, in our view. 

For private markets, these interest rate dynamics have influenced target returns and acquisition pricing, especially in sectors with long-term defined cashflows such as infrastructure. In the credit markets, while relatively high rates may deter borrowing, the refinancing needs of assets and businesses have driven a strong flow of transactions. 

Private credit continues to deliver historically strong returns, benefiting from elevated risk-free rates and limited default experience. The asset class may offer investors some high-level tactical opportunities, in our view. We also believe real estate, particularly in the UK and US, presents potentially attractive windows of tactical opportunity due to significant repricing activity.  

A more mixed picture is seen in the infrastructure sector, in our view. While high leverage and refinancing costs burden some parts of the asset class, others, such as clean energy and digital infrastructure, are expected to see robust asset creation. Private equity may well see a more active year in terms of transactional activity but we expect this to reflect tighter bid-offer spreads rather than a material increase in pricing and investment returns.

Our approach to private markets is built on our foundational principles. We recognise the growing role of the asset class within multi-asset portfolios and advocate for a targeted, thematic approach when allocating to the asset class.  

Performance within asset classes is increasingly divergent based on our core long-term themes: digitalisation, demographics, decarbonisation, and deglobalisation. This thematic focus links to specific sectors and segments, including residential and industrial real estate, digital infrastructure, clean energy, natural capital, and health tech.

Geographical diversification remains a key strategy to mitigate specific market risks, particularly in a more uncertain political and policy environment and given a historical ‘home bias’ among investors. We also emphasise the importance of public-private solutions, especially given the challenges asset owners have faced during periods of market dislocation. The interest rate reset has led to a dramatic slowdown in transactional activity and asset realisations in private markets, resulting in reduced liquidity and the ability to reposition portfolios. 

As private markets play a growing role in portfolios, solutions that balance exposure to private markets with mechanisms to deliver liquidity for investors are becoming increasingly important, in our view.

You can read our full 2025 private markets outlook here.

Key risks: the value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Past performance is no guarantee of future results.