Private Markets Offer Opportunities Despite Rising Uncertainty, Schroders Outlook

What's New:

Despite a slowdown in private markets over the past three years, Schroders Capital's Q2 2025 outlook suggests valuations and yields are now attractive, though significant risks remain from US policy changes affecting trade, immigration, and ESG priorities.

Why It Matters:

Private markets typically demonstrate resilience during volatility, presenting strategic opportunities for investors able to navigate heightened uncertainty around inflation, economic growth, and interest rates while maintaining proper diversification.

Big Picture Drivers:

• Volatility from US policy changes is creating market turbulence with potential stagflationary impacts

• Supply-demand dynamics have shifted favorably for investors as fundraising, deal activity, and exits have slowed

• Geopolitical tensions make domestic-focused assets particularly valuable as insulation from trade conflicts

• Innovation sectors beyond AI, including biotech and climate tech, offer attractive growth potential despite AI valuation corrections

By The Numbers:

• 3-year slowdown in private equity fundraising, deals, and exits has created favorable entry points

• $160 billion in secondary market transaction volume recorded in 2024

• $71 billion in continuation fund transaction value, a key growth area

• Potential $250 billion annual continuation fund market within a decade

• 15% of global venture investment went to AI in 2024

Key Trends to Watch:

• Small and mid-sized buyouts historically outperform during market disruptions and should continue showing resilience against current uncertainties.

• European and Asian renewable energy investments remain attractive despite US policy headwinds as cost competitiveness drives adoption.

• Real estate values are recovering sequentially across markets with transaction volumes showing early signs of recovery.

• Insurance-linked securities provide exceptional diversification as their lack of correlation with macroeconomic factors creates portfolio protection.

The Wrap:

Successful navigation of private markets in 2025 requires investors to be highly selective, focusing on strategies with balanced capital supply-demand, domestic focus, minimal leverage, and reduced correlation to public markets while maintaining diversification across sectors.