Featured Takeaways
Today’s unclear market outlook is different than prior cycles but offers similar reminders of the role that private markets play. Our Q2 2025 release includes the latest data on market performance, fund flows, deal activity and valuation across private market and hedge fund strategies. Key takeaways include:
- A continued uptick in private credit flows on the iCapital platform
- More favorable valuations for U.S. private equity relative to public equities
- A challenging start for private equity exits in 2025, potentially driving more volume to the secondaries market
- A new, in-depth overview of the venture capital market
- Continued stability in real estate transaction volumes and pricing
- Year-to-date performance across hedge fund strategies and rising dispersion of public equities
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Introduction
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Flow-of-Funds
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Overview
- Overview 08
- Assets Under Management 09
- AUM by Asset Class 10
- Alts vs. Tradition AUM 11
- Fundraising 12
- Dry Powder 13
- Deal Activity/Entries 14
- Returns by Strategy 15
- Projected Performance 16
- Yields 17
- Cross Asset Correlations 18
- Risk/Return 19
- Dispersions 20
- Relative Valuations 21
- Private vs. Institutional 22
- Allocation to Alternatives 23
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Private Equity
- Private Equity 24
- Assets Under Management 25
- IPO Trends 26
- Private Company Trends 27
- Private-to-Public Company Ratio 28
- Returns 29
- Downside Protection 30
- Return Dispersion 31
- Value Creation 32
- Valuations 33
- Middle Market Buyout 34
- Leverage 35
- Leverage/Rate Sensitivity 36
- Exit Activity 37
- IPO and M&A Activity 38
- Holding Period and Secondaries 39
- Secondaries Market 40
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Venture Capital
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Private Credit
- Private Credit 53
- Assets Under Management 54
- Bank Lending 55
- Dry Powder/Lending 56
- Returns by Strategy 57
- Risk-Adjusted Returns 58
- Drawdown Risk 59
- Yields 60
- Yield Decomposition 61
- Return Decomposition 62
- Credit Losses 63
- Coverage Ratios 64
- Total Returns 65
- Asset-based Lending Opportunity 66
- Private Credit in ABL 67
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Commercial Real Estate
- Commercial Real Estate 68
- Market Overview 69
- Correlations and Returns 70
- Drawdowns and Returns 71
- Net Operating Income (NOI) 72
- Transaction Volume 73
- Property Prices 74
- Cap Rates 75
- NOI by Property Type 76
- Case for Value-Add 77
- Supply and Demand 78
- Sector Fundamentals 79
- Maturities and Delinquencies 80
- CRE Loans/Office Delinquencies 81
- Debt Funds and Yields 82
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Infrastructure & Other Real Assets
- Infrastructure & Other Real Assets 83
- Market Overview 84
- Transaction Overview 85
- Correlations and Returns 86
- Returns by Strategy 87
- Performance in Higher Rate Periods 88
- Infrastructure Spend 89
- Infrastructure Spend Gap 90
- Investments by Geography 91
- Data Center Overview 92
- Power Generation Overview 93
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Hedge Funds
- Hedge Funds 94
- Assets Under Management 95
- Returns by Strategy 96
- Fund Launches and Closures 97
- Stock/Bond Correlation 98
- Comparative Risk/Return 99
- Historic Performance 100
- Performance in Higher Rate Periods 101
- Stock Dispersion 102
- Credit Stress and Strategy 103
- Asset Volatility 104
- M&A Activity Indicator 105
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Structured Investments
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Annuities
- Annuities 116
- Market and Product Overview 117
- Annuity Spreads 118
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Index Definitions
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Attributions
- Attributions 121
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Important Information
Page Index
Global Research, Strategy, and Insights Team
Private wealth clients favored private equity and private credit in the first quarter of 2025
Private wealth clients are increasing allocations to direct lending and infrastructure strategies
In the last five years, private wealth clients boosted allocations to private credit, registered funds
Alternatives hold $17.2 trillion in assets under management globally across strategies
Alternatives have grown significantly and are projected to grow further in years ahead
Alternatives are expected to have the strongest growth rate compared to traditional markets
Alternatives fundraising activity has been challenged amidst an uncertain macro backdrop
Dry powder has declined to $3.9 trillion as committed capital begins to get deployed globally
Deals continue to get done, but at a much slower pace than expected at the start of the year
Alternatives have offered strong outperformance vs. a traditional 60/40 portfolio
Over the next decade, alternatives are projected to outperform their public counterparts
Several private market strategies offer higher yields than those available in public markets
Alternatives can be a powerful diversifier due to their low correlation to public markets
Alternatives offer higher returns and lower volatility vs. a traditional 60/40 portfolio
Manager selection has been an important driver of return outcomes in alternatives
Several private market strategies are inexpensive relative to public markets and history
Private clients to increase alternatives allocation from $4 trillion to $13 trillion by 2032
Opportunity to increase allocation is sizable given low portfolio allocation and advisor use
Private equity is the largest asset class within alternatives and has grown significantly
Companies are delaying their IPO (some indefinitely) as they stay private for longer
Private companies outnumber publicly traded ones, across most revenue segments
Private markets offer investors an opportunity to tap into a larger pool of innovation
Private equity outperformed public equities over various time horizons
Private equity has delivered more consistently positive returns with fewer negative years
Private equity improves when investing during downturn year vintages
Private equity fund managers have multiple ways to create value vs. public markets
Private equity valuations have stabilized and remain lower than public markets in the U.S.
Middle market buyout may be in favor this year given valuations and capital market activity
Fund managers have adjusted to higher cost of capital by reducing the use of leverage
Realization of further rate cuts may help improve levered company financials
Exits have been off to a lackluster start and will likely be challenged by the macro backdrop
Capital markets optimism has faded on tariff concerns and lack of deregulation focus
Holding periods continue to increase and drive the need for additional sources of liquidity
Growth in secondaries is driven by strong supply/demand dynamics
Venture capital AUM is expected to grow at a 12.7% CAGR through 2029
Venture capital offers access to a vast opportunity set and high-growth sectors like Tech
Venture capital has become a dominant force in the financing of innovation and growth
Private markets drive most of the value creation meaning most returns are captured pre-IPO
Despite recent underperformance, venture returns have outpaced equities over the long run
Manager selection is key when investing in VC as top quartile funds significantly outperform
Signs point to a turning tide in venture capital despite recent macro turmoil & uncertainty
Venture valuations have remained sticky but are more reasonable than they appear
Lower valuation step-ups signal a cooler VC market but better entry points for investors
Exit activity remains challenged, and acquisitions continue to be primary exit path for startups
AI startups drive VC funding resurgence, and they command significant valuation premiums
Private credit AUM have grown rapidly to record levels
Secular decline in bank lending is being driven by regulation, capital requirements
Growth in private equity buyout strategies drives further demand for private credit
Private credit strategies historically outperformed public fixed income sectors
Direct lending offered favorable risk-adjusted returns versus public fixed income
Private credit drawdown risk is moderated by buy-and-hold nature, fewer dislocations
Risk premium, complexity and market inefficiencies provides a backdrop for attractive yields
Direct lending spreads recently widened, moving closer to historical excess spread
Income has been a steady component of private credit returns over time
Credit losses for private credit have been in line with high yield and bank loan issuers
Private credit coverage ratios are improving, which could help keep defaults in check
Lower volatility, high income led to more consistently positive results for private credit
The emergence of asset-based-lending in private credit unlocks a vastly larger opportunity set
Asset-based lending is becoming a meaningful alternative as banks pulled back post-GFC
CRE is a large, diversified asset class with growing interest from private capital investors
CRE has had a low correlation to and better risk-adjusted returns than public markets
Private real estate had less frequent drawdowns, which helped deliver returns overtime
Growth in net operating income (NOI) has outpaced inflation and served as a core return driver
Transaction volumes are recovering, should help provide more realistic pricing in coming quarters
Commercial real estate prices corrected sharply, but the recovery process is underway
Cap rates reset higher as the Fed raised interest rates, but remain low relative to bond yields
NOI growth is slowing from high levels but is still roughly above long-term averages and inflation
Value-add funds can help improve NOI given the growing need to improve aging structures
Supply and demand dynamics remain relatively healthy and should also support NOI
Most CRE sectors have solid fundamentals, except for office where weakness persists
Lower use of leverage and higher debt coverage ratios offset some of these concerns
Banks are still retrenching from commercial real estate lending amidst rising defaults
CRE debt funds with ample dry powder should help partially fill the void
Infrastructure is a globally diverse asset class with significant fund assets in Europe
Investors can consider four broad categories of infrastructure with varying characteristics
Private real assets have produced superior risk-adjusted returns with low correlation
Real assets have delivered returns outpacing developed market inflation
Real assets provided higher returns during periods of moderate to high inflation
Global economies are set to spend $3.2 trillion per year on infrastructure through 2040
There is a widening gap between projected infrastructure spending and society’s needs
U.S. and Europe have significantly stepped up their infrastructure-related investments
Digitization and growth in data centers is one of the prominent themes in infrastructure
The investment need for additional decarbonized power generation is growing
Hedge fund AUM has rebounded and has hovered near record levels
Different hedge fund strategies can help position for various market conditions
Similar number of hedge fund launches and liquidations highlight selection importance
Traditional 60/40 portfolio is not offering the “natural” diversification it use to, especially today
Historically, adding hedge funds to traditional portfolios has improved risk/return
Over time, hedge funds offer equity-like results with less downside risk
Hedge funds have generally performed better during periods of elevated rates
Hedge fund opportunities increase in periods of higher equity dispersion, low correlation
The recent widening in index spreads creates opportunities in distressed credit
The recent spikes in volatility can be a driver of returns for hedge funds
Event Driven strategies may benefit from the expected pick-up in capital markets activity
Structured investment volumes in the private wealth channel have grown over time
Payoff structures for market-linked growth and income notes
Types of protection available in structured investments
Full principal protection demand is a function of equity levels and bond yields
Preference for types and investment terms of structured investments varied over time
Preference for type of protection and type of underlying asset evolved over time
Structured investment returns and pricing are dynamic, fluctuate with market conditions
Rates have moved lower, though credit spreads have widened on the back of market jitters
Volatility remains below 2021-22 levels but has trended higher in recent months
The annuity industry experienced strong growth as rates rose in recent years
Secular demand for annuities is also driven by rising population of age 65 and over
Definitions
Definitions (cont’d)
Attributions
Important Information
Previous Alternatives Decoded Releases
Alternatives Decoded – Q1 2025
Alternatives Decoded – Q4 2024
Related Posts
Private Markets & Hedge Fund Strategy Ratings – 1H 2025
Beyond 60/40 Video: Episode 38
Beyond 60/40 Video: Episode 37
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