For general partners (GPs) and limited partners (LPs), 2025 is not a year to sit on the sidelines. The macro environment is shifting—rates are falling, but not as fast as expected. Public markets are climbing, yet private markets still lag in valuations. Private equity is looking for a way to bridge the pricing gap, venture capital is trying to rebuild after two years of write-downs, and real estate is dealing with a refinancing wave that could break portfolios that aren’t positioned well.
For allocators, the real challenge isn’t just where to deploy capital—it’s how to manage risk in a market where asset prices remain uncertain. The liquidity squeeze in private markets is easing, but exits aren’t coming fast enough. Dry powder in PE is still sitting at record highs, yet GPs are hesitant to deploy until valuations correct further. In private debt, yields are strong but face compression if rate cuts materialize. Infrastructure remains stable, but investor focus is shifting away from renewables toward traditional energy and telecoms.
This is the real state of play in 2025—no hype, no generic outlooks, just the data and trends that will actually drive capital allocation.
Table of Contents
Private Equity: Can the Market Get Moving Again?
Private equity has been waiting for a catalyst, but so far, dealmaking remains slow.
- Dry powder is at record levels, but deployment is restrained due to valuation mismatches.
- U.S. buyout deals are averaging 12x EBITDA, in line with mid-cap public companies but still below peak levels.
- Public markets are up 26.3% since Q1 2022, but PE exits haven’t picked up at the same pace.
The issue isn’t just pricing—it’s also liquidity. Exits have been sluggish, with secondary sales and continuation funds doing more of the heavy lifting than IPOs or strategic acquisitions. The S&P 500 rebounding to near-2021 highs should help justify higher valuations, but unless that translates into real exit activity, LPs will remain hesitant to double down on new commitments.
That said, sentiment is turning. Nearly 50% of LPs plan to increase PE allocations in 2025, making it the most favored asset class in private markets. The opportunity is there, but until the bid-ask spread narrows, expect GPs to remain cautious with deployment.
Venture Capital: A Market That Can’t Afford Another Bad Year
Venture capital is in the early stages of a rebound, but it’s not out of the woods yet.
- The Preqin VC Index is down 20.6% from its 2021 peak—one of the worst declines in private markets.
- Late-stage deal activity is picking up, but early-stage rounds remain subdued.
- IPO windows could reopen, but only if public market sentiment holds.
LPs have been hesitant to commit fresh capital, with dry powder at its lowest level relative to AUM across all private assets (20%). That’s put pressure on GPs to stretch existing capital and focus on portfolio health rather than aggressive new dealmaking.
On the bright side, AI-driven investments are proving resilient, and 2025 vintages could be well-positioned as valuations reset. If public market strength leads to a return of tech IPOs, expect a meaningful turnaround. But without that, VC could remain a challenging allocation for LPs looking for liquidity.
Private Debt: No Longer the Safe Bet?
Private debt has been the standout performer in recent years, offering stable returns while other private assets struggled. But with rates expected to decline, returns could face downward pressure.
- Projected IRR (2024–2029): 12.0%, up from 8.1% in the previous period.
- 52% of LPs expect returns to stay stable, while 37% see downside risk.
- Loan spreads are tightening, and deployment opportunities remain flat.
Direct lending has benefited from high floating-rate yields, but as rate cuts loom, GPs will need to adjust. The bright spot? Demand for non-bank financing remains strong, and the flexibility of private debt structures continues to appeal to LPs looking for diversification.
For LPs already overweight private debt, the question is whether to maintain allocations or rotate into other income-generating assets like real estate debt or infrastructure.
Real Estate: Is Stabilization Finally Here?
Real estate investors have been waiting for signs of a bottom, and 2025 may finally bring some clarity.
- Real estate equity is down 5.2% over the last nine quarters.
- Real estate debt returned 15.6% over the same period, making it a bright spot.
- Office occupancy rates are improving, but refinancing risks remain.
The refinancing wave in 2025 is the biggest challenge—loan-to-value ratios have worsened, and the cost of capital for value-add and opportunistic strategies has increased. LPs looking at real estate will have to be selective, with a focus on sectors that have pricing power, such as industrial and multifamily.
For those already allocated, real estate debt remains the more attractive play, offering strong relative yields with less exposure to valuation risk.
Infrastructure: The Shift Away from Renewables
Infrastructure has been one of the most stable asset classes, but investor focus is shifting.
- Projected IRR (2024–2029): 10.9%, up from 9.2%.
- Dry powder levels have dropped from 34.6% to 23.9% of AUM—a potential slowdown indicator.
- Telecom and traditional energy are attracting more capital, while renewables are losing steam.
Recent U.S. policy changes, including restrictions on wind energy permits and a boost to oil, gas, and nuclear projects, have altered the investment landscape. LPs looking at infrastructure should factor in these shifts, as sector selection will be more important than broad allocation trends.
Final Takeaways: Where GPs and LPs Should Focus in 2025
- Private equity: Deals will pick up, but only once valuation mismatches are resolved. LPs are bullish, but GPs are still cautious.
- Venture capital: Sentiment is improving, but recovery depends on public market exits. Dry powder constraints remain a challenge.
- Private debt: Yield compression is a concern, but demand for flexible financing structures keeps this asset class attractive.
- Real estate: Refinancing risks are the biggest issue, but real estate debt remains a strong alternative for yield-seeking investors.
- Infrastructure: Capital is shifting away from renewables toward traditional energy and telecoms, reflecting policy and economic shifts.
For GPs, 2025 is a year to be selective—deploying capital at the right valuations will be critical. For LPs, the challenge is balancing liquidity needs with long-term return expectations. The best opportunities will be found in the details, not broad market trends.