Private equity 2025: Market shifts and investor priorities

SuperReturns Miami 2025 highlighted a private equity market in transition, from evolving market dynamics to a changing regulatory environment. While optimism prevailed early in the year, uncertainty has crept in, creating a complex investment landscape. Here's a breakdown of key insights from the event shared by Lynne Westbrook, Head of Fund Services – US,  Manli Zarandian, Commercial Director – Funds, and Joseph Gordian, Regional Head – Fund Services.

A market in flux

The overarching theme was one of adaptation. The private equity market, still flush with dry powder, faces challenges stemming from wide bid/ask spreads and sluggish M&A activity. Zarandian highlighted the impact of a new administration, introducing regulatory uncertainty through potential tariffs and fluctuating interest rates. While a full-blown recession remains uncertain, the market anticipates potential margin compression and headcount reductions as warning signs.

Investment themes and LP priorities

Despite the uncertainty, strategic opportunities remain. Key investment themes include direct lending, value-add real estate and co-investments. Zarandian emphasised that LPs are focusing on tangible returns, with DPI (Distributions to Paid-In Capital) becoming the new "ROI."

In the energy and renewables sector, LPs are exploring diverse investment mediums beyond traditional PE and PC, including co-investments and secondaries. The focus is on accessing infrastructure deals, with keywords like climate, blockchain, AI, real assets, power plants, LNG, gas, and highways dominating discussions. Notably, energy is seen as more of a PE play than a pure real assets game.

When selecting GPs, LPs are prioritising strong teams, particularly those with a clear carry structure. Zarandian pointed out the growing success of independent sponsors who build track records through deal-by-deal approaches. LPs value a combination of strong people, robust processes, and a niche focus.

Secondaries – a maturing market

The secondary market has transitioned from a niche segment to a mainstream force, offering solutions for liquidity challenges. Zarandian noted the prevalence of GP-led transactions, with 15% of exits last year falling into this category. Continuation vehicles are also gaining traction across the private capital space.

The quality of funds entering the secondary market has significantly improved compared to the past decade. GPs are increasingly seeking co-investments, and DPI remains the critical metric for evaluation. Zarandian observed that EU managers tend to hold portfolio companies longer due to capital constraints compared to their US counterparts.

Looking ahead, tokenisation of assets and securities in secondaries could revolutionise liquidity and transferability. Fund structures like 40Act and evergreen funds, alongside traditional closed-ended structures, are gaining popularity.

Latin America's private market growth

Westbrook noted that private markets are increasingly vital as a conduit for capital into Latin America, particularly in countries like Mexico, with investors allocating across various strategies. Pension reforms are driving growth in Separately Managed Accounts (SMAs). While the region presents a volatile market, understanding the significant nuances across different countries is crucial. Notably, Peru is re-entering private market investments after a multi-year hiatus. The importance of side letters persists, and establishing strong relationships through face-to-face engagement remains vital for navigating the complexities and achieving success in the Latin American market.

Identifying high-growth investment sectors 

Gordian attended a SuperReturn session titled "Identifying tomorrow's high growth sectors: where to invest in 2025," The panel, featuring Brad Bernstein of FTV Capital, Christian Ostberg of FIN Capital, Edward Talmor-Gera of New Vest, and Vikram Bajaj of Foresite Capital, highlighted several key investment areas. 

The panellists identified biotech and foundational healthcare problems, including therapeutics and business process innovation, as significant growth sectors. Artificial intelligence (AI) emerged as a dominant theme, with discussions focusing on data challenges in financial services, AI applications in science and engineering, AI tools in private markets (including using AI to assess AI), and AI integration into tech-enabled software. 

The banking sector, influenced by perceived regulatory shifts under the new US administration, was also highlighted, with a focus on the use of USD stable coins for domestic and international payments in both business-to-consumer and business-to-business contexts. Finally, the panel emphasised the growing importance of healthcare and wellness, particularly products and services focused on early intervention and disease detection, aimed at keeping people healthy and creating value. 

Private equity's role in sports

Gordian attended a second session titled "Game Changers: the role of Private Equity in Sports," confirming the strong potential of private equity investment in this sector. The panel, featuring Tom Garfinkel of the Miami Dolphins and Mark Affolter of Ares Management, highlighted the NFL as a particularly attractive asset class. 

Recent approvals for private equity investment in NFL teams, including Ares Management's stake in the Miami Dolphins and Arctos' investment in the Buffalo Bills, underscore this trend. NFL teams are considered "safe" investments due to their locked-in economic value, secured media rights and high corporate sponsorship retention. The limited supply of NFL teams, combined with their widespread popularity, ensures continued value appreciation. The discussion expanded to other sports, including the NBA, MLB, Formula 1, and FIFA, emphasising the vast international growth potential. 

The MLB's recent opening day in Japan and the global appeal of the FIFA World Cup were cited as examples. The panel addressed the misconception that NFL teams are not profitable, clarifying that they generate significant revenue, further enhanced by the league's salary cap, which maintains competitive balance. In contrast, the MLB, without a salary cap, experiences greater payroll disparities, impacting competitive parity. Garfinkel concluded by emphasising the unique ability of sports to foster shared experiences in an increasingly isolated digital world.

Key private equity predictions and takeaways

• Bear market for PE: In comparison to the highs of 2021/2.
• Challenging fundraising environment: Fundraising is expected to remain tough.
• DPI is king: LPs are prioritising DPI as the primary measure of performance.
• Secondaries are here to stay: The secondary market is poised for continued growth.
• Liquidity solutions: GP-led secondaries and continuation vehicles are becoming more important for liquidity.
• Team matters: The quality and structure of the GP team are key factors in LP selection.
• Adaptability is crucial: Navigating the evolving market requires flexibility and strategic adaptation.

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