Private Markets Show Signs of Recovery as Capital Access Improves, UBS Outlook

What's New:

UBS's March 2025 Quarterly Private Markets Update reveals a bottoming trend in commercial real estate values that began in late 2024, alongside significant recovery in private equity exit activity, which rebounded 49% year-over-year through Q4 2024. Bank lending standards for multifamily and non-residential commercial real estate have eased considerably.

Why It Matters:

The private markets recovery signals potential for enhanced portfolio returns after challenging 2022-2023 conditions. As interest rates stabilize and capital sources expand, opportunities are emerging across private equity, credit, and real estate – particularly for investors who can access quality managers and identify demographic-driven market opportunities.

Big Picture Drivers:

• Capital access: Banks account for 51% of total CRE debt, with private credit lenders holding record $250 billion in dry powder available for deployment.

• Secondaries: The market achieved record transaction volume of $162 billion in 2024, reflecting growing importance as a strategic portfolio management tool.

• AI dominance: AI and machine learning investments captured 46% of total venture capital deal value in 2024, up dramatically from 24% during 2019-22.

• Valuation trends: Private equity valuations have remained more stable than public markets, with LBO entry multiples at 10.6x in Q4 2024 versus 10.4x in 2023.

• Manager selection: Performance dispersion between top and bottom-quartile managers remains significant, particularly in private credit.

By The Numbers:

• 15.4%: US private equity's 10-year annualized return, outperforming both S&P 500 (13.4%) and Russell 2000 (8.8%)

• $838 billion: Total private equity deal value for 2024, up 19% year-over-year

• 89%: Average secondary market portfolio pricing as percentage of NAV, up from 85% in 2023

• 10%: Approximate yield in private credit despite 2024 spread compression

• 8 years: Estimated backlog of PE-backed companies waiting to exit

Key Trends to Watch:

• Exit constraints are creating secondary opportunities as PE-backed companies face mounting pressure from extended holding periods, now averaging 7 years.

• Private wealth allocations to alternatives are forecasted to increase substantially, potentially reaching $10 trillion by 2030, with 30-40% allocated to private credit.

• Construction lending has declined precipitously while multifamily lending has reversed course and increased substantially, supporting real estate fundamentals.

• Valuations in AI have risen dramatically, with median pre-money valuations for AI and ML companies at $33 million and average valuations reaching $554 million in 2024.

The Wrap: Private markets are approaching an inflection point after weathering higher rates and limited exit opportunities. With substantial dry powder across strategies, easing lending conditions, and strategic sector opportunities emerging, 2025 could reward investors who focus on manager selection and detailed market research to identify demographically-advantaged opportunities.