Private markets investments are expected to grow in 2025 as institutional and wealthy investors seek both protection and differentiated returns through greater diversification, with infrastructure, private credit, and private equity seen as the major beneficiaries.
While market conditions are widely anticipated to improve next year, concerns linger around growing geopolitical tensions and the impact of potential policy changes – including the reemergence of inflation – as new administrations occupy the governments of major economies, including the US. A recent survey from Campden Wealth and HSBC Global Private Banking found that portfolio diversification is the top priority for European family offices, with a whopping 71% of respondents including it as a key objective. By contrast, the second-highest-ranked priority is realigning portfolios toward growth objectives, which was flagged by 35% of respondents.
That doesn’t just go for wealthy investors. A recent global survey of asset owners by bfinance found that more than a third of institutional investors intend to increase diversification in 2025, with three quarters of respondents seeking greater resilience in their portfolios and 54% rating geopolitical unrest as a “high concern” threatening their ability to achieve desired investment objectives in the next few years. As a result, more than a third of respondents said they intend to make “significant changes” to their investment strategy in the next 18 months.
Those changes will include more investment in private markets – 53% of asset owners in the bfinance survey said they will increase exposure to private markets in 2025 – with infrastructure, private debt, and private equity, in that order, the preferred destinations. A recent study of financial advisors from CAIS and Mercer backs that up, with 91% of advisors saying they want to increase clients’ private market exposures and a majority recommending investments in private equity, private credit, and infrastructure. Fidelity International also recently rated private equity, infrastructure, and senior direct lending as its “top convictions for 2025.”
Infrastructure
Increasing exposure to infrastructure makes a lot of sense, JP Morgan Asset Management wrote in its own 2025 investment outlook report: "In an environment characterised by two-sided risks, real assets emerge as a vital component of a well-rounded portfolio. These assets, which include real estate, infrastructure, transport and commodities, provide a hedge against inflation, offering protection when conventional safe havens are scarce.” Such investments will enhance the resilience of investor portfolios, generating “returns irrespective of market conditions.”
AI is a particular driver in demand for infrastructure investment, with estimates circulating that the US alone could require as much as $1T in additional investment in AI and cloud infrastructure by 2030. That’s driven some notable tie-ups in recent months, with BlackRock, Microsoft, and Abu Dhabi-based MGX in September announcing a $30B fund to invest in AI and related energy infrastructure, and just a month later KKR announcing its own agreement with Energy Capital Partners to invest $50B in data centers and energy infrastructure both in the US and globally.
It’s not just AI that will drive demand either, according to Schroders, which in a recent report said, “a supply-demand gap between available capital and renewable project development needs to meet net zero commitments [presents] opportunities for strategies that benefit from active management and potential for enhanced cash flows across the energy transition spectrum.” Fidelity International echoed that, saying that both AI and growing renewable energy demand will equal more infrastructure opportunities.
Private Credit
Private credit in another area that has been heating up, with GPs looking to rapidly scale up their capabilities in the space – BlackRock’s recent $12B acquisition of HPS serving as the biggest recent case in point – while at the same time responding to growing investor appetite, one that is even filtering downmarket to retail in the form of new CLO-backed ETFs. In a separate survey report published in October, Schroders said private credit was cited as a top interest of over half of US institutional investors surveyed (54%) and the asset class where institutional investors see the greatest opportunity in the next two years.
Family offices are increasingly getting in on the act, too, in part driven by the fact that there has not been a great deal of liquidity in recent years in private markets, despite ongoing increase in demands, putting them in a prime position to offer that liquidity release valve. “The desire to maintain access to liquidity stems from an increased appetite for illiquid markets, such as private equity and venture capital. Family offices are getting smarter about working capital lines through debt facilities and how this can form part of a successful private markets portfolio,” Christo Scott, managing director in UHNW for HSBC Global Private Banking, wrote in the joint report with Campden Wealth.
Private Equity
Private equity could well be the biggest beneficiary of expected changes in the market environment. A lack of liquidity opportunities has seen secondaries and continuation vehicles on the rise, with marketplace EquityZen reporting that family offices increased allocations to secondary vehicles 100% in 2023 and a survey of family offices by UBS showing they planned to over-allocate to the secondaries market in 2023. And continuation vehicles are attractive, because “a lot of funds dating toward the end of their shelf life have good assets sitting in them,” Daniel O’Donnell, head of alternatives and investment manager solutions for Citigroup’s wealth unit, told Bloomberg in a November interview.
But that could be changing, as market watchers expect an uptick in IPO and M&A activity after several fallow years, with such liquidity events offering both an opportunity to return capital to investors and spurring greater interest in new private equity fundraising.
EY reports that optimism is building for the 2025 IPO market, based on clearer political direction, lower capital costs, a broadening equity market rally, and a large IPO backlog following years of constrained activity. To put the backlog in perspective, “People don’t realize that, for the last three years, we’ve been hovering at 30-year lows in terms of M&A volume as a percentage of nominal GDP,” Michael Zawadzki, CIO of Blackstone’s credit and insurance unit, told attendees at Bloomberg Intelligence’s 2025 credit outlook conference on December 5.
Meanwhile, BCG’s M&A Sentiment Index continues to show signs of a strengthening market, with the firm saying it anticipates more deal activity in coming months, particularly in the US and Europe. “Most industries will participate in the recovery, especially those in the energy, technology, and health care sectors,” the firm wrote in an October report. “Fundamental factors, such as economic growth and political and regulatory conditions, will surely remain volatile. Even so, major trends, including energy transformation, digitization, and the rising importance of AI, will continue to propel the M&A market.”
