Private markets in focus: understanding a transforming investment landscape
Ronan Barry
Associate Director
Global Investment Selection
Private markets investments, where appropriate for an investor, can be a powerful and diversifying portfolio allocation. They encompass a broad range of asset classes and strategies, ranging from buyouts and take-privates of long-established businesses to growth equity in fast-scaling newer ventures, and also include private debt strategies and real assets (like property or the infrastructure behind essential services). Here we explore the market dynamics of each of these sectors, and look at how investors can best harness the asset class.
Private markets access
One of the biggest changes in private markets recently is the creation of new fund structures that make it easier for investors to access their money when needed. These structures have also opened private market investments to a wider range of investors. Historically, private markets have primarily been accessed through illiquid, closed-ended vehicles, with 10-year fund terms. Capital is called over the first few years of the fund’s life and returned to investors as investments are realised in later years. This meant that after the original investment was made, investors had very little control over when they could invest more or withdraw their money post original investment. The terms meant that institutional investors (endowments, foundations, sovereign wealth funds, ultra-high net worth family offices) were the primary source of capital flowing into private markets and the main beneficiaries of the asset class’s returns. New fund structures, known as open-ended, semi-liquid or evergreen vehicles, allow for more frequent trading (most funds offer quarterly dealing) and may be accessed by individual investors through wealth management providers. In order to facilitate the quarterly dealing, these funds will typically need to hold a portion of the assets, roughly 10-15%, in liquid assets which may cause a cash drag on the portfolio, but investors benefit from the remaining capital being continually deployed and from the ability to redeem from the funds. However, it should be noted that these funds do still invest in private assets and so, at times, may need to gate redemptions should they exceed the amount of available liquid capital.
Growth of private markets Private markets have grown significantly over the past 10 to 15 years. Initially, this growth was driven by institutional investors looking for higher returns and better diversification during a period of very low interest rates. More recently, new fund structures have enabled a wider range of investors to access private market investments, an asset class that was previously out of reach for many. This trend is often referred to as the ‘democratisation of private markets’. According to McKinsey Global, private markets assets grew more than threefold between 2013 and the end of 2023 and this growth has only continued since then with mainstream adoption of private market investments.
Private market investment activity The 2020s so far have been one of the most dynamic periods for private markets in their history, particularly in private equity. The low-interest-rate environment, abundant liquidity and strong economic recovery after the pandemic resulted in a surge of private equity activity in 2020 and 2021, including deal making and Initial Public Offerings (IPOs), particularly of speculative technology companies which historically would not have been ready to face the scrutiny of public market investors. From 2022, the broader private market industry faced a more challenging environment as central banks rapidly increased interest rates to combat inflation. Higher financing costs, greater economic uncertainty and a widening gap between differences in what buyers and sellers believed assets were worth led to a pronounced slowdown in dealmaking, including both acquisitions and exits, as shown in Figure 1. More recently, conditions have started to improve with deal value and exit activity increasing since 2024. However, this recovery has been disrupted at times by events such as the ‘Liberation Day’ tariffs in 2025 and the conflict in the Middle East in 2026.
While the value of deals continued to increase through 2024 and 2025, this growth was driven by a number of extremely large deals taking place. By count, the number of global buyout deals fell from 2024 to 2025 and was actually fewer than the number of deals that took place back in 2016.
Figure 1: Global buyout deals: 2016 - 2025
Source: Bain & Company.
Performance vs public markets
Private equity has faced a challenging period of performance relative to public markets since 2022. The sharp increase in rates weighed on valuations, slowed deal activity and reduced exit opportunities in private markets for several years, while public equity markets, driven by large-cap US technology stocks, have delivered exceptionally strong returns since the start of 2023. As a result, private equity returns have generally lagged public market benchmarks over that period. However, short-term periods of relative underperformance are not unusual and should be viewed in the context of private equity’s long-term track record. Over multiple market cycles, private equity has proven its ability to outperform public equities, driven by active ownership and operational value creation. Hamilton Lane, in their 2026 market overview, looks at the 10-year rolling returns of private equity vs. public markets with a view to framing the performance in a longer-term view. Figure 2 shows the 10-year rolling returns of private equity versus the MSCI World. While private equity has consistently performed better than public markets over the period, the level of outperformance narrows meaningfully at multiple times in the period, indicating shorter-term underperformance, none more so than the most recent period. While strong private market performance has ticked down in recent years, public markets have also seen a very strong upward trend in their recent performance, meaning that the 10-year returns of public markets now approach that of private equity.
Figure 2: 10-year rolling time-weighted returns for private equity vs. MSCI World: Q1 2001-Q3 2025
Source: Hamilton Lane.
Buyout: value creation is key Throughout the 2010s the low-interest-rate environment and abundant liquidity proved a significant tailwind for both leverage and multiple expansion driven returns. The three primary ways a buyout-focused private equity investment can generate returns are: 1. Operational improvement: increasing the company’s revenues, margins, cash flows and earnings through various strategic initiatives;
2. Use of leverage: taking on debt as part of the acquisition of the company and then using the cash flows to pay that down over the hold period leaving more of the value to the equity holders;
3. Multiple expansion: selling a business at a higher valuation multiple than it was acquired for.
Throughout the 2010s the low-interest rate environment and abundant liquidity proved a significant tailwind for both leverage and multiple expansion driven returns. However, in today’s higher-rate and more uncertain environment, returns are expected to be driven increasingly by improvements in the operational performance of portfolio companies. As a result, selecting managers with a strong track record of creating value through operational improvement will be a key determinant of private equity outcomes.
Growth equity and venture capital: AI using up all of the oxygen
Despite several high-profile IPOs, and public markets which in general have been supportive of newly emerging business models, growth equity and venture capital markets are still in a recovery phase following an extremely challenging period post-2021. As inflation concerns drove interest rates higher, these portions of the private markets experienced a significant price correction. While, in a low-interest-rate environment, a low cost of capital benefited growing companies both in terms of a relatively easy fundraising environment and a high present value for longer-term growth opportunities, these dynamics reversed as rates rose. Investing in growth and venture capital, however, often yields power law-like returns: a relatively small number of ‘winners’ drive an outsized proportion of returns, and therefore recoveries do not necessarily rely on a broad market rebound. For now, though, the market remains focussed only on parts of the system poised to benefit or suffer from AI trends. IPOs have historically been a route for growth and venture capital managers to exit their holdings in emerging business models and the activity in the IPO market shown in Figure 3 highlights the scale of the challenges facing managers in the space. Following a record period of IPO activity by number of deals and total proceeds in 2020 and 2021, the number of listings subsequently fell in 2022 and 2023 to levels not seen since the Global Financial Crisis by number of IPOs, and not seen this century by total proceeds. The most recent recovery in IPO activity is welcome and may help to relieve some of the backlog of deals to be realised, but much of this activity is focused around AI.
Figure 3: Initial public offerings: 2000 to H1 2026
Source: US Securities and Exchange Commission.
Private credit: in the spotlight
In the period since the financial crisis, private credit has evolved into a mainstream asset class, with estimated assets under management (AUM) reaching $3.5trn by year-end 2025. Investors have been attracted by higher yields, and private debt solutions now sit alongside traditional bank financing for prospective borrowers. It has helped that, broadly speaking, private credit investors have seen plain sailing over the last decade. In 2025 and 2026, the picture changed somewhat: this has been the first period since its explosive growth in which the asset class has made headlines for defaults, alongside concerns that headline statistics are masking credit risk events. While industry metrics do not suggest widespread distress, it’s a period in which prudent underwriting and selective lending are likely to outperform.
Real estate: selective recovery
Opportunistic real estate is another market which is in an uneven recovery. Real estate markets generally sustained significant declines beginning in 2023 as higher interest rates were factored into the market prices for yielding assets, along with the effects of lower transaction volumes and concerns around continued office occupancy. However, the operational health of assets (occupancy, leasing, rent collection and rent increases) has remained strong. In 2025 real estate markets began to stage a recovery, largely aided by strong income returns. In 2026, though uncertainty around Iran-conflict inflation-related concerns has not been helpful, selective asset types are accelerating, including data centres, residential, and higher-quality retail and office assets.
Infrastructure: strong supports
As an asset class, infrastructure currently sits at the convergence of a number of long- and short-term trends. The long-term requirements are to replace and expand traditional assets such as road and rail networks, and to update electricity generation and transmission capabilities to support the green energy transition. The short-term drivers are to increase energy security and resilience, and support increased digitalisation, including data centre buildouts. As these trends are all occurring within an asset class with a history of resilience and inflation protection, demand for infrastructure assets has surged from both a fundraising and deployment perspective.
Allocating to private markets
Similar to the rest of an investor’s portfolio, diversification is crucial. But what does diversification look like in private markets? • Asset classes: each of the asset classes outlined above will behave differently in different stages of a market cycle. e.g. infrastructure and parts of private credit performed well in 2022 through the period of high inflation and interest rate rises due to the contractual and inflation-linked nature of cash flows, while more equity, particularly growth, focused strategies, lagged in that environment. • Geographies: while the US is the focus of much of the activity within private markets, Europe and Asia also offer attractive opportunities to deploy capital and having a global mandate can reduce the risk if a downturn were to occur in a single region. • Vintage: given the nature of the assets held within private markets portfolios, investors should take a long-term approach to investing in the space. Investments made closer to a market trough should outperform investments made near a market peak. In closed-ended funds, spreading the commitment across multiple vintage years means that capital will continually be deployed through market cycles and can potentially reduce the risk of becoming overexposed to investments near the peak. While open-ended vehicles offer immediate exposure to a portfolio built out over multiple years, given the length of time the process takes to subscribe or redeem from these funds, as well as the potential of the fund becoming gated, trying to time investing in the space is unlikely to be a rewarding enterprise, so it makes sense to view these funds as long-term holds.
Closing perspectives
Private markets have evolved from a predominantly institutional allocation into a more accessible component of individual investors’ portfolios. The growth in new investment vehicles has significantly increased access to the asset class, although investor demand has not kept pace, with many remaining underwhelmed by recent performance. In our view, much of this underperformance reflects cyclical rather than structural factors. While broader access has improved availability, it has not removed the inherent illiquidity, complexity and risks associated with private markets. As a result, investors should undertake careful due diligence and understand how managers generate returns before committing capital. However, for those prepared to navigate the asset class thoughtfully, the long-term investment case remains compelling. Private markets can continue to play a valuable role in enhancing portfolio diversification and supporting long-term return objectives.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
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