Private Capital: A Mid-Year Stocktake

As we reach June 2025, private capital markets find themselves at a critical juncture. The post-COVID momentum of record fundraising, easy exits, and soaring asset values has firmly given way to a new paradigm—one characterised by tighter liquidity, valuation discipline, and operational value creation. This recalibration isn't merely a cyclical adjustment; it represents a fundamental maturation, demanding greater sophistication and adaptability from all participants. Yet, amid this recalibration, there are clear signs of evolution and renewal. Investors, fund managers, and international finance centres (IFCs) alike are adapting to ensure continued relevance and long-term resilience.

Fundraising Slows, Strategy Deepens

Fundraising activity is markedly subdued. No traditional buyout fund raised over $5 billion globally in Q1 2025—breaking a decade-long trend. This stark statistic underscores a profound shift: institutional investors, facing liquidity pressures and recalibrated portfolio models, are reining in allocations. The "denominator effect," where a decline in public market valuations inflates the proportion of private assets in an LP's portfolio, often forces them to hold back on new commitments to avoid breaching allocation limits. Coupled with slower distributions from existing funds, LPs are less able or willing to recycle capital into new ventures.

The slowdown, however, is not an indiscriminate contraction. Capital is flowing selectively to managers with strong track records, differentiated theses, and clear value-creation plans. The days of easy capital are over; what remains is patient capital, backing purposeful strategies. Fundraising cycles have lengthened significantly, with the average time to close a fund in Q1 2025 stretching to approximately 18 months, compared to an average of 13 months between 2020 and 2024. This extended timeline requires GPs to demonstrate not only investment acumen but also operational resilience and a compelling narrative to weary limited partners (LPs). While there were some substantial private equity fund closes in Q1 2025, such as Ardian's $30 billion secondary fund and ICG Strategic Equity Fund V at $11 billion, these were primarily secondary funds, not traditional buyout funds. Blackstone Energy Transition Partners IV did close on $5.6 billion, but this is an energy transition fund, which might be considered a specialised buyout fund rather than a 'traditional' one, depending on the strictness of the definition. Thus, highlighting a discernible shift in LP appetite towards strategies that offer either liquidity solutions or exposure to resilient, future-proofed sectors.

Private Credit and Growth Equity: Stars of the Cycle

While buyout strategies face headwinds, private credit and growth equity are gaining ground. Private credit, now a $2 trillion asset class globally, is believed to support over 60% of new private equity deals. This ascendancy is a direct consequence of banks retrenching from leveraged lending due to heightened regulatory scrutiny and capital requirements. Direct lenders are stepping in—offering tailored capital to resilient mid-sized businesses across the US and Europe. Their appeal lies in their ability to deliver flexible, bespoke financing solutions quickly, providing greater certainty of execution compared to traditional syndicated loans. For investors, private credit offers attractive yields, often floating rates, which provide a hedge against inflation and rising interest rates. The sector's growth is phenomenal; some analyses project the private credit market to reach $2.8 trillion by 2028, solidifying its role as a core financing pillar for private markets.

Growth equity—particularly in infrastructure, digital health, and climate tech—is also drawing investor interest. These sectors combine scalability with real-economy relevance, making them attractive amid macro uncertainty. Infrastructure, especially digital infrastructure (data centres, fibre optic networks), offers long-term, predictable cash flows and essential service provision, making it resilient. Digital health thrives on the non-discretionary demand for healthcare and the ongoing digital transformation of the sector. Climate tech, propelled by global decarbonisation efforts and significant policy support (e.g., the US Inflation Reduction Act), benefits from powerful secular tailwinds that insulate it from general economic volatility. Growth equity's relatively lower reliance on leverage compared to traditional buyouts further enhances its appeal in a high-interest-rate environment, focusing instead on capitalising proven business models for accelerated expansion.

Public–Private Convergence

The walls between private and public capital markets are becoming increasingly thin. Valuations are more interconnected. Pension funds, insurers, and sovereign funds are simultaneously active in both domains. Retail exposure is on the rise. This convergence is fostering a greater demand for a robust reporting discipline, ESG integration, and transparent pricing mechanisms. Private capital must increasingly operate with the same level of accountability expected of listed businesses—even if the capital structure remains closed-end. Disclosure is not merely a matter of compliance but a matter of competitive necessity. Managers who can provide institutional-grade reporting, clear ESG credentials, and greater transparency will gain a significant edge in attracting and retaining capital from increasingly sophisticated limited partners (LPs). The era of opaque private market operations is drawing to a close, giving way to a demand for best practices that mirror those of the public sphere.