Private Markets Eye Growth Despite Warning Signs in Investment Climate

What's New

S&P Global Market Intelligence's 2025 Private Markets Playbook reveals private equity and venture capital partners expect improved deal activity and fundraising this year, with megadeals reaching a three-year high in 2024 and AI investments surging 70% year-over-year to $83 billion. Lower interest rates are expected to unlock further deal activity as the valuation gap narrows between buyers and sellers. Venture capitalists have tripled their investments in late-stage AI companies compared to the previous year.

Why It Matters As more companies opt to remain private rather than pursue IPOs and high-net-worth individuals increasingly seek alternative investments, private markets are attracting unprecedented capital—but must navigate record PE-backed bankruptcies, declining exit values, and global trade tensions.

Big Picture Drivers

• Rates are expected to decline in 2025, potentially making leveraged buyouts more affordable and narrowing the buyer-seller valuation gap.

• Targeting remains critical, with companies in the top quintile of growth, leverage, profitability, and size five times more likely to be acquisition targets.

• Technology adoption, particularly AI, is transforming private equity operations from capital formation to portfolio management.

• Competition between large and small firms intensifies as scaling operations becomes essential for survival in the evolving landscape.

• Infrastructure investment in datacenters is surging despite signs of AI momentum stumbling, including Microsoft abandoning projects due to oversupply.

By The Numbers

• Private credit market projected to reach $3 trillion AUM by 2028, roughly double current levels

• AI investments soared 70% year-over-year to $83 billion in 2024

• 71.4% of private equity partners expect improved deal activity in their region

• Private equity-backed bankruptcies reached their highest level on record in 2024

• Per-employee valuation at late-stage AI companies rose to $320,000 from $220,000 in 2023

Key Trends to Watch

• Regulatory scrutiny of private credit markets could increase as officials in the US and Europe push for greater transparency in these relatively opaque markets.

• Commercial real estate stress may persist longer than anticipated but appears unlikely to trigger broader financial system deleveraging.

• AI application companies are pivoting from R&D toward monetization as engineering positions dropped 2% while sales and operations roles grew.

• Rising tariffs and trade uncertainties under the Trump administration are complicating exit strategies for portfolio companies exposed to new duties.

The Wrap

Success in 2025's private markets will require balancing technological adoption for operational efficiency while maintaining the strategic insights that drive investment decisions—firms that effectively leverage AI while navigating economic headwinds will be best positioned to capitalize on the sector's continued growth.