Private Equity, Credit, and Real Estate Outlook

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Hi there,

Hope most of you found some downtime and are back with renewed focus. I am currently taking a short break in Madeira, Portugal, which has provided an opportunity to reflect on how the markets are doing at present.

In this week’s edition, I cover key trends and signals in private equity, private credit, and real estate. Activity has picked up, but much of it looks like engineered liquidity and delayed recognition of risk rather than a genuine recovery.

Let's dive in.

📉 Private Equity: Liquidity, Secondaries & Fundraising

In 2024, private equity distributions narrowly exceeded capital calls for the first time since 2015, mainly thanks to dealmaking and select exits. But by 2025, net cash flows turned negative again as exit activity slowed, and secondary market transactions (especially GP-led continuation funds) drove record liquidity volumes rather than genuine realizations.

This is not the sign of a healthy exit market. It instead reflects liquidity pressure, with LPs selling fund stakes and GPs leaning on continuation vehicles and NAV financing to meet mounting cash demands.

Other metrics that stand out:

• Average PE holding periods hit 6.7 years (30% longer than historical norms)

• 61% of buyout portfolio companies have been held for more than four years

• PE and VC funds are sitting on roughly $2.5 trillion of dry powder

A significant amount of liquidity is being created through secondaries and fund-level financing, rather than disposals. Regulators and industry groups have been raising questions about transparency and alignment in these “exit” vehicles.

Pricing in secondaries has improved versus 2024 but remains below par on average, with dispersion by strategy. Recent H1 2025 reviews cite buyout portfolios clearing in the low- to mid-90s of NAV, while other segments trade wider.

Fundraising data over the past quarter show tighter re-ups and greater selectivity. Capital raised in the 12 months to June 2025 fell to a seven-year low, while Q2 2025 figures and legal-market updates suggest longer closing timelines and a more challenging environment for managers with limited distribution reach.

📈 Private Credit: Improving Defaults Amid Structural Challenges

The private credit market now exceeds $3 trillion. Default rates fell to 1.76% in Q2 2025 from 2.67% in Q4 2024, reflecting an improvement in headline figures. Yet the moderation obscures underlying stress in the market.

Spreads have narrowed from the wides seen in late 2023. Year-to-date 2025 data show more deals pricing below SOFR + 500 bps, and the margin differential with syndicated loans has tightened as BSL liquidity returns, according to PitchBook’s Midyear Outlook.

Banks continue to support leveraged lending, in some cases funding private credit vehicles directly. This additional liquidity is putting downward pressure on yields and may be eroding lending standards.

Regulators, including the Federal Reserve and the FDIC, have flagged the potential systemic implications.

Other metrics worth noting:

• Direct lending spreads: 2025 YTD distribution skews lighter, with more sub-S+500 outcomes and a shrinking spread gap vs BSL 

• Covenant stress: Lincoln’s Senior Debt Index shows covenant defaults up to 3.4% in Q2 2025 (size-weighted), with amendments tempering headline figures

• Recoveries: First-lien loan recoveries have weakened, with Fitch reporting recoveries under 25% in 8 of 11 cases, much lower than typical public‑loan recoveries

A lot of recent credit relief is coming from changes to loan terms such as covenant amendments, maturity extensions and payment deferrals rather than from stronger earnings.

Lincoln highlights increased PIK usage and higher covenant-breach rates, while Alter Domus reports more amendments and payment deferrals to keep borrowers current.

Both point to the same trend: cash interest burdens are being eased in the short term, but this creates tail risk if borrower cash flow fails to rebound.

In practice lenders are competing on structure speed and certainty rather than on spread. This approach may create future risks if terms continue to loosen and cash flows fail to recover.

🏠 Real Estate: Transactions Rising, Values Constrained

Global direct CRE investment volumes picked up in the first half of 2025. Market trackers such as JLL and IRE point to stronger transaction activity but also a sizeable refinancing calendar stretching into 2027, which continues to weigh on pricing and liquidity.

Office yields have adjusted higher since 2021, and cap rates remain stuck near elevated levels. Pricing indices suggest stabilization rather than recovery, with all-property values still below prior peaks and offices the clear laggard. Green Street and MSCI data show that recent gains have yet to offset past declines.

Financing costs remain structurally higher than earlier in the cycle. Even as spreads have tightened, clearing levels on many office trades reflect discounts to prior valuations and, in some markets, to replacement cost. Investors are demanding higher returns and deploying capital more selectively, according to CBRE and Altus Group.

Fundraising trends reinforce this cautious outlook. While headline figures show some improvement in capital raising, flows are shifting toward debt and opportunistic strategies. Managers are also reporting longer timelines, reflecting a more selective LP environment.

The narrative of stability can be misleading. With flat net operating income and wider cap rates, leverage mechanics mean equity values remain compressed regardless of transaction activity. Recent CBRE and MSCI data illustrate this structural reality.

✒ To Conclude…

In private equity, liquidity looks stronger on the surface, but most of it is coming from continuation funds, secondaries, and NAV facilities rather than traditional exits. Distributions are happening, though they owe more to structuring than to actual realizations.

In private credit, the drop in default rates is encouraging at first glance, but much of the improvement comes from amendments, extensions, and PIK features. Borrowers are being kept current, but mainly by stretching terms and pushing pressure into the future.

In real estate, deal activity has picked up and is giving investors more reference points, but values remain held down by higher financing costs and a heavy refinancing calendar through 2027. What looks like stability is really a market treading water rather than moving into recovery.

If you find these mid-week editions useful, let me know what topics you would like to see next.

Until next time,
PE Bro

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Disclaimer: This overview is based on publicly available information believed to be reliable, but its accuracy or completeness cannot be guaranteed.

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