Analysis
2025 Mid-Market Review
Private Equity:
H1 Review and H2 Outlook
What to Watch out for in H2 2025
- After a promising start to 2025, exit activity has fallen back into limbo amidst trade uncertainty, put private equity programs under increasing pressure to deliver liquidity
- LPs to become increasingly proactive in unlocking liquidity through LP-led secondaries deals
- Managers who have sat tight are coming to a point where they have to find exits for portfolio companies – even if it means selling at discounts to NAV
- Liquidity pressures and global uncertainty are prompting a rethink of LP strategy, with the mid-market firmly back in the investor radar
Tim Toska
Global Sector Head, Private Equity
The private equity industry has found itself stuck in a holding pattern through the first half of 2025, with an anticipated increase in exits and distributions yet to materialize.
Private equity managers entered 2025 with cautious optimism and hopeful that with inflation peaking and interest rates coming down, jammed up M&A and IPO markets would reopen and enable firms to secure exits and return cash to investors, which in turn would help to reenergize becalmed fundraising markets.
For the first quarter of 2025, the market looked set to deliver on this promise, with global private equity exit value coming in at $175.59 billion – almost triple the $65.4 billion of exit value recorded in Q1 2024 and strongest quarter for exit value since Q2 2022, according to law firm White & Case and Dealogic.
A significant overhaul of US tariff and trade policy announced early in Q2 2025, however, slowed early momentum with prospective exits and IPOs of private equity portfolio companies put on hold as vendors and buyers paused to assess the impact of a changing tariff backdrop on portfolio company earnings and asset valuations.
Final exit figures for Q2 2025 are still pending, but with Bain & Co analysis showing buyout deal value for April 2025 almost a quarter (24 percent) below the monthly average posted through Q1 2025, a drop off in deal flow following a promising start to the year is expected, with exit activity directly impacted. Bain & Co models forecasting declines in exit value and volume in Q2 2025.
Pressure builds to lock liquidity
A choppy first half of 2025 has left managers under increasing pressure to up distributions to LPs, who are waiting on cash to flow back from their private equity programs before making allocations to the next vintage of funds.
This has left private equity managers stuck in a fundraising limbo, with PEI figures for Q1 2025 showing fundraising posting the weakest first quarter since 2020 and some $21.7 billion down on Q1 2024 numbers.
Bain & Co analysis indicates there will be little respite for managers facing the fundraising market, with around $3 of manager demand for capital for every $1 dollar of LP allocation supply.
Through the M&A and IPO drought of the last 18-24 months, managers had been able to ease the pressure to make distributions somewhat by unlocking liquidity through alternative structures, with Bain & Co noting that the industry had secured some $410 billion through minority stake sales, dividend recapitalizations, secondaries continuation vehicles and net asset value (NAV) financings.
The stalled exit rally of 2025 suggests that GPs will have to continue leaning into these alternative exit channels to extract some liquidity from ageing portfolios (Pitchbook analysis shows the private equity hold periods are a decade highs), but there is intensifying demand from LPs that GPs start to realize cash proceeds through conventional means and stop relying on highly-structured solutions to improve distributed-to-paid-in ratios.
In a webinar poll of Institutional Limited Partners Association (ILPA) members, for example, more than 60 percent indicated a preference for mainstream exits over other options – even if this meant trading at discount to current portfolio valuations.
Shifting market dynamics
Looking ahead to the second half of 2025, the prolonged liquidity bottleneck that has hovered over the market through the first half of year will drive shifts investor tactics and strategies.
LPs, who have waited patiently for exit windows to reopen, could start taking a more proactive approach to expediting liquidity by trading directly in the secondaries markets in great volumes. In 2024 LP-led secondaries deal value climbed to US$87 billion, the highest total since 2016, according to Adams Street Partners’ 2025 Global Investor Survey.
This momentum has carried into 2025, with US university endowments, a cornerstone of the private equity investor base, deciding to sell portfolios in the secondaries market for the first time. According to Adams Street, 40 percent of LPs see selling portfolios in the secondaries market as a priority for 2025 – the highest level since the COVID period in 2020.
This trend could prompt a changed in GP behavior, with acute demand for liquidity pushing managers to bite the bullet and trade out of portfolio companies – even if they have to do so at a discount to NAV – in order to clear out older vintages and move on.
The distributions squeeze is also prompting a rethink of geographic and market segment exposure among investors.
From a geographic perspective, tariff disruption in the US has sparked a shift in LP sentiment when it comes to making allocations by geography, with a survey by fund adviser Capstone Partners finding that around a third of LPs anticipate reducing allocations to certain geographies on account of geopolitical and macro-economic uncertainty, with North America emerging as the region most affected.
The return of the mid-market
There are also signs of a rethink among LPs when it comes to the prevailing strategy of the last decade to consolidate GP relationships, write bigger cheques to fewer managers and skew portfolios to large private markets franchises running multi-asset investment strategies.
Slowing distributions and the challenging exit market for large assets, however, has put the mid-market firmly back on the investor radar, with LPs pivoting back to this segment of the private equity ecosystem. The New York State Teachers’ Retirement System, for example, is considering upping its target for small and medium buyout funds from 45 percent to 55 percent, while the California Public Employees’ Retirement System has upped its exposure to mid-market private equity from 28 percent of its budget allocation to 62 percent during the last 24 months, PEI reports.
Investors have acknowledged the mid-market’s ability to generate alpha across cycles, with Pinebridge research showing that mid-market buyout funds show less correlation to public equities than large cap funds, and are less volatile and more resilient in periods of macro-economic uncertainty.
Returns dispersion in the mid-market between top performers and the rest is wider than at the top end of the market, which heightens risk of adverse selection, but at point in the cycle where large cap managers are still working through a backlog of ageing portfolio company exits, the mid-market’s track record and distinctive attributes are shining through and expected to continue catching LP attention through the rest of 2025.
Infrastructure:
H1 Review and H2 Outlook
What to Watch out for in H2 2025
- Infrastructure fundraising is rallying, with fundraising for the first half of 2025 already ahead of the full year total for 2024.
- In volatile capital markets, investors are turning to infrastructure to deliver uncorrelated returns.
- The asset class is supported by favorable underlying drivers, supporting a long pipeline of deal flow for managers.
- Managers will expand infrastructure investment strategies into areas like private debt and secondaries to expand access to infrastructure deals.
Anita Lyse
Global Sector Head, Real Assets
Private infrastructure has emerged as a safe haven of choice for investors through a volatile first half of 2025.
After a flat year in 2024, fundraising for the asset class has thrived in through the first half of 2025, with managers securing $134.3 billion in commitments – already more than the full-year total of $111.3 billion raised last year, according to Infrastructure Investor figures. Takings through the first half of the year represent the second strongest H1 fundraising during the last five years, putting the infrastructure in position to land one of the ever years for fundraising on record.
Uncorrelated returns in a choppy market
Through a six-month period of trade and geopolitical uncertainty, infrastructure has offered investors the promise of stability and attractive, uncorrelated returns.
Infrastructure has been one of the best performing private markets asset classes – outperforming public market equivalents for the last 12 years, according to Hamilton Lane figures, and for the last 10 vintage years has posted pooled one-year IRRs of 12.5 percent.
The asset class, however, hasn’t attracted increasing investor backing because of short-term volatility. The sector also benefits from attractive long-term commercial and operational drivers point to long-term earnings growth and returns.
Maintaining and upgrading existing infrastructure, meeting increasing demand to develop more core infrastructure to support expanding populations, and the emergence of new pockets of infrastructure, such as digitalization and renewable, present infrastructure managers with a large pipeline of potential deals offering a wide range of risk-return dynamics.
United Nations models forecast that the global population will reach a record high of 9.7 billion by 2050, which will drive huge demand for increased investment in core water, sanitation, transportation and power infrastructure.
The G20 Global Infrastructure Hub estimates that at current levels, investment is not sufficient to meet anticipated, with an infrastructure funding gap of $15 trillion opening up by 2040 unless levels of investment accelerate.
With public finances stretched following pandemic stimulus measure and increases in borrowing costs, governments will increasingly have to turn to private infrastructure managers to fill the funding gap.
Private infrastructure managers are also playing a key role in funding the roll out of renewable energy and data center infrastructure.
Investment in renewable energy is now outpacing hydrocarbon investment at a ratio of 10-to-1 – five times higher than a decade ago, while the data center market is growing at a 22 percent compound annual growth rate, reflecting the emergence of AI and the digitalization of the world economy[4].
These drivers point to a private infrastructure that has a long runway of growth still ahead of it. According to Preqin infrastructure assets under management have been growing at a compound annual growth rate (CAGR) of 16 percent since 2010 and are on track to exceed $1.8 trillion by 2026. Even if this forecast is meet, total private markets infrastructure AUM will only be a fraction of the US$15 trillion infrastructure funding gap.
Opening up new routes to market
In the months ahead private markets managers will leverage the strong investor appetite for mainstream, flagship infrastructure funds to launch new strategies in areas like secondaries infrastructure and infrastructure debt.
Managers early to the infrastructure secondaries space have made consistent distributions to investors at buyout-like returns with net IRRs in the 20 percent range.
According to asset manager Blackrock the infrastructure secondaries market is still a relatively under-capitalized market that presents buyers with scope to acquire infrastructure portfolios at attractive entry multiples and is on the cusp of a surge in transaction volumes as the private infrastructure market matures and more buyers and sellers in infrastructure space take advantage of the liquidity and j-curve mitigation secondaries plays can deliver.
Infrastructure debt presents a similar growth trajectory, as infrastructure developers look to expand the range of financing options available to them.
In the US, for example, a jurisdiction where infrastructure projects have been financed in municipal bond markets, more issuers are turning to private debt finance, where lenders typically aim to hold debt for the long-term rather than selling down in times of volatility. Private markets manager Apollo estimates that growth in private infrastructure lending could see the overall private debt market grows as large as $40 billion.
A positive outlook
The infrastructure space is not without its challenges. Shifts in US policy and subsidies for renewables, for example, will present headwinds for decarbonization and green energy investors to navigate. Infrastructure assets, particularly in the transport, logistics and ports spaces, are also on the frontline of geopolitical conflict and trade disruption, and can be exposed to falling traffic volumes and terrorism risk. Infrastructure operators are also under increasing scrutiny with respect to the resilience and contingency plans in place for the crucial infrastructure they manage.
Even when factoring in these risks, however, the underlying drivers of infrastructure demand globally, and the huge ask when it comes to finance projects to meet this demand, present private infrastructure investors and managers with attractive opportunities to lock in attractive, risk-adjusted returns is the face of ongoing macro-economic uncertainty.
