Where is Private Equity heading in 2025?

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Hi there,

This week, I took a closer look at how private markets adjusted through 2024.

While managers continued to deploy capital, 2024 was an undoubtedly mixed year. Fundraising fell to its lowest level since 2016 and GPs deployed more capital despite a still-shaky macro backdrop. Liquidity pressures eased in some key areas, and managers leaned harder on operational levers while valuations remained elevated.

McKinsey’s Global Private Markets Report does a solid job mapping out the year — showing where capital flowed, where bottlenecks persisted, and how investor behavior is shifting in 2025. Below is a curated breakdown of the most important trends and figures worth knowing.

Let’s dive in.

📉 Fundraising Still Declining, But More Deployment

Although aggregate private-markets commitments fell 24% year-on-year to $589 billion — the third straight drop — GPs still deployed around $2 trillion. Even so, overall dealmaking volume was labeled ‘tepid’ by McKinsey, and public equities outperformed private equity over the same period.

So, what drove the activity? Cheaper credit, stabilizing valuations, and persistent demand in areas like AI infrastructure, clean energy, and supply-chain resilience. Deal volume picked up across private equity, real estate, and infrastructure.

Here’s what stood out:

• Fundraising fell 24% YoY to $589B

• Exit backlog hit its highest level since 2005

• Global entry multiples rebounded to 2021–22 levels

• Private equity deal value rose 14% to roughly $2 trillion

• Real estate transactions increased 11%, ending a two-year decline

• Infrastructure investment activity reached its second-highest level ever

• Secondaries surged 45% to a record $162B as LPs turned to them for liquidity

• PE-backed exits rose 7.6% to $813B, with large exits ($500M+) seeing double-digit gains

⌛ Private Equity: Active Deployment, Longer Holds

Large-cap deals rebounded as leveraged loan and high-yield debt markets reopened. Loan spreads tightened by roughly 100 bps to ~370 bps, and banks began underwriting big LBOs again. Debt became easier to access, and average global entry multiples recovered to 11.9× EBITDA. Unlike the previous two years, distributions exceeded capital calls, providing GPs with welcome liquidity.

Still, managers are holding on to assets longer, potentially waiting for more favorable exit conditions. McKinsey notes that 61% of buyout portfolio companies have been held for more than four years, with the median hold length has hit 6.7 years — roughly 30% longer than historical norms.

Here’s how sponsors are adapting:

• GP-led secondaries & continuation vehicles: Of the $162B in secondaries, $75B was GP-led, and 84% used continuation structures to create liquidity while retaining control.

• Operating focus: Add-ons made up ~40% of buyout deal value. Leaders are scaling ops teams, but capability is uneven across the market and operational uplift still explains <40% of value in realized buyouts since 2010.

• New investor channels: Evergreen funds, feeder vehicles, and SMAs targeting the wealth channel now represent $1–1.5 trillion AUM — but require more hands-on client servicing.

Despite these measures, the stock of unrealized investments stands at its highest level since 2005, underscoring persistent liquidity constraints. That raises key questions: Are continuation funds and other GP-led mechanisms genuinely converting paper gains into distributable cash, or merely “kicking down the can”? How long will LPs tolerate compressed IRRs as holding periods extend in the hope of a better exit in the future?

🏠 Real Estate: Signs of Stability, but Mixed Results

Global real estate transactions rose 11% to $707 billion, ending a two-year decline. Multifamily deals were up 20%, industrial assets +16%. Cap-rate compression and constrained supply helped firm up pricing.

Three themes that are shaping allocations:

• Hands-on operations: Owner-operators now control 37% of global AUM, using energy efficiency upgrades, tenant experience tools, and revenue management to lift NOI.

• Debt overhang: Roughly $2.1 trillion of US commercial real estate loans is due before 2027 — giving credit funds a refinancing opportunity, but also opening windows for potential distress.

• Niche outperformers: Data centers, manufactured housing, and life sciences labs posted strong double-digit returns. Meanwhile, legacy office assets remain under pressure, steering capital toward more specialized themes.

Fundraising remains under pressure, with closed-end vehicles raising just $104 billion (–28% YoY), the weakest total since 2012. Debt strategies saw the steepest drop, falling 44%, as capital shifted toward opportunistic and special-situation funds. In response, many managers are leaning into smaller, high-conviction acquisitions, often backed by JV or SMA capital with a clear focus on yield stability.

In addition, distress remains widespread in legacy sectors — particularly U.S. office and retail, where vacancy rates are high and refinancing risks are rising. While certain segments like multifamily and logistics have stabilized, capital deployment remains uneven, and caution prevails outside of niche outperformers.

🔌 Infrastructure: Building Blocks In Demand

Infrastructure had a strong year — deal value jumped 18%, the second-highest total on record. Deployment outpaced fundraising, reducing dry powder 10% to $418 billion. But inflows slowed: fundraising fell 15% to $106 billion, a 10-year low.

What’s changing:

• More risk appetite: Value-added funds brought in 34% of inflows — well above the 10-year average of 19%. Nearly half of LPs plan to increase allocations here.

• Comfort with development: Brownfield and greenfield deals hit a record share. Deal count rose just 7%, but ticket sizes grew — more capital went into earlier-stage assets in search of higher IRRs.

• Operational expertise wins: Telecom deals made up 16% of total volume, with data centers comprising 58% of that. Renewables held steady at ~22%. Execution on interconnects, permitting, and offtakes is separating top-tier managers.

🔁 Private Debt: Holding Firm, But Margins Tighten

Private-debt fundraising fell 22% to $166 billion — still the fifth-highest year on record. But pricing compressed: unitranche spreads tightened 120 bps to ~550 bps, while syndicated loan spreads dropped to ~370 bps, narrowing the gap to just ~180 bps.

As banks became active again in the LBO market, direct lenders’ share of new issuance fell to 54% of deal value (from 64%). Even so, scale mattered: the top five managers took in 38% of all capital, up from 29% in 2023, as insurers and BDCs backed platforms with origination, structuring, and distribution reach.

Looking ahead:

• Margin squeeze: With the illiquidity premium tightening, sector specialization and flexible capital stacks are increasingly essential to defend returns.

• Refi avalanche: Roughly $620 billion in high-yield and leveraged loans mature in 2026–27 — offering volume, but requiring more rigorous underwriting.

• New frontiers: Basel IV and regulatory shifts are steering banks away from longer-duration risk. Expect faster growth in asset-backed finance, infrastructure debt, and higher-risk CRE as private lenders fill the gap.

That’s the update for today, I hope you found this breakdown of McKinsey’s PE report useful and took the most out of it.

If you’re enjoying these mid-week editions, let me know what you’d like to see next — investor profiles, firm histories, or deep-dives on strategic shifts. I’m always open to ideas.

Until next time,
PE Bro

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Disclaimer: This overview is based on publicly available sources, including McKinsey’s 2025 report. While accuracy is a priority, not all details are independently verified. This is not an official statement from McKinsey or its affiliates.

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