Key Takeaways
Capital markets activity, trade policy, and visibility to the U.S. Federal Reserve policy path were the overarching inputs that went into our rating analysis. Still, the second quarter of 2025 ended with more momentum than it started with. Overall, we’re optimistic about the deal environment, reflected in positive views for middle-market buyout, venture, and event-driven strategies. On the credit side, we remain Neutral on credit hedge fund strategies and Positive on private credit despite some spread compression on new deals.
PRIVATE EQUITY
Exit activity manages through the macro noise
We remain confident in a pickup in exit activity, although the pace and the timing of a sustained improvement has been affected from the U.S. tariff announcements in April 2025. Still, IPO and M&A activity picked up throughout the second quarter of 2025 providing a healthy backdrop for middle market and late-stage venture strategies.
Private Credit is showing signs of a crowded market.
Private credit performance remains resilient . Although, we’ve seen some softening from our view at the start of 2025 — particularly spread compression on new deals and signs of competition and difficulty in deploying capital. . However, we believe lenders should still be able to achieve gross yields of about 10%, which is a premium to most high yield and investment grade yields, and a reason we remain Positive.
New issue all-in yield composition
Yield of newly issued sponsored first-lien yields
Source: Cliffwater LLC as of June 2025. Past performance is not indicative of future results. Future results are not guaranteed.
REAL ASSETS
The Resiliency Of Infrastructure Is Seen In Sustainable Positive Returns
Private infrastructure posted double-digit annual returns over three, five, ten and fifteen-year periods. Tariff and tariff speculation could have negative and positive impacts on infrastructure but growing public deficits, digital transformation, energy transition and advancing energy independence are longer term structural shifts that provide tailwinds for the space.
Hedge Funds
Versatility Shines
We continue to favor multi-strategy as opportunistic trading in global interest rates and quantitative strategies helped overcome a challenging period for long/short equity allocations.
Private Markets & Hedge Fund Strategy Ratings
2H 2025
Explanation of iCapital’s Ratings Framework
iCapital’s basis for assigning ratings is the research team’s view of how the investment strategy will perform over the next three years relative to its respective category. For this purpose, the “category” is the asset class associated with investment strategies for which the research team provides coverage. For example, a rating for Growth Equity is relative to other strategies within the Private Equity category.
Strategy ratings are reevaluated at least semiannually with an emphasis on whether the outlook is materially different to affect how the investment strategy may perform over the next three years relative to its category.
Strategy Ratings:
- Positive: Investment strategies expected to outperform the category over the next three years.
- Neutral: Investment strategies expected to perform in line with the category over the next three years.
- Negative: Investment strategies expected to underperform the category over the next three years.
We use a three-year time horizon as it is roughly the average holding period for a private market asset. For Hedge Funds, we use the same strategy rating method but consider a 12-to-24-month performance outlook because of the higher mix of liquid assets that a typical hedge fund may own.
Related Articles
iCapital 2025 Market Outlook
Alternatives Decoded – Q4 2024
1. Pitchbook, Q1 2025 US PE Breakdown, April 11, 2025.
2. Dow Jones, iCapital Alternatives Decoded, with data based on availability as of Apr. 30, 2025. Note: Data as of December 2024 and is subject to change based on potential updates to source(s) database. Public infrastructure proxied by Dow Jones Brookfield Global Infrastructure Composite Index. For illustrative purposes only. Past performance is not indicative of future results. Future results are not guaranteed.
3. Source: CBOE, S&P Dow Jones, iCapital Alternatives Decoded, with data based on availability as of Mar. 31, 2025. Note: Data through June 2025 and is subject to change based on potential updates to source(s) database. CBOE S&P 500 Dispersion index measures the expected dispersion in the S&P 500 over the next 30 calendar days.
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