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2025 Private Market Predictions

  • Market commentary

January 14, 2025 | 4 min read

Scott Voss

Managing Director,
Senior Market Strategist

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“The best way to predict the future is to create it.”
Abraham Lincoln

2024 was a trough year in many (if not all) ways for private equity KPIs, including exits, investment activity, and fundraising. Our expectation is that 2025 will be better on all fronts.

During this busy time of year for predictions, this is my attempt to be right but not boring. They may not all play out exactly as predicted, but I hope that some will. So let’s get into it.

1. Does private equity go vertical?

Due to the strong interest from wealth to access what has historically been an asset class only available to institutions, gatekeepers and advisors are taking a close look at the value chain to understand how consolidation can create synergies to cut costs across the entire value proposition.

The provocative question is, who buys who? Does XYZ Financial Services, Inc., buy ABC Private Equity firm, or vice versa?

It is vertical integration in its simplest form. We have seen and will continue to see acquisitions, minority investments, and partnerships to drive towards this more efficient model to capture the entire value chain.

This will likely further bifurcate the private market definition. For example, there may be a very clear distinction related to what private market means for the institutional limited partner versus the high-net-worth (HNW) limited partner working with some of the leading financial services institutions as their trusted advisor.

2. Unicorn, decacorn, hectacorn?

Over the past few years, we have jumped rapidly from Web3/Crypto, AI, Space, Robotics, Nuclear/Fusion, and Defense. Multiple innovation cycles are rapidly playing out simultaneously. In some cases, they are compounding on top of each other. I do not think we have seen a time when a company would go from entrepreneur and an idea to billion-dollar revenue generating and multi-billion-dollar valuation in less than 5 years. And yet, we have several examples today.

It makes sense: AI and Space are expected to become approximately $2+ trillion-dollar industries in less than 10 years.1 Combined that could be 20-40% of the entire US economy today. Just like the unicorn club from a decade ago, we will continue to see the new billionaires’ club, defined as hyper growth scale companies raising billions of private capital on a one-way mission to define their market.

All of this will continue to stir the ongoing debate around the question of “what is venture?” (I plan to write more about this soon. Stay tuned.)

3. The buyout and the IPO: Will we see the greatest of all time?

In the recent past (let’s say the last two to five years), the largest IPOs and the largest leveraged buyouts have been happening at values between $5-12 billion.2 This has been the case for both venture and buyouts, respectively. In some cases, the public market has been a facilitator transferring ownership from venture to buyout through a short stint as a public company. In the history of private markets, the largest leveraged buyout and largest venture backed IPO (by value) were TXU at $45 billion and Facebook at $104 billion, respectively.3

There is a chance we see both of these records fall in 2025.

For the buyout record, there are some very real and iconic targets that are ripe to be brought private to execute on longer term transformations assisted by private equity. This would be similar to the Dell playbook from over a decade ago. Their current public market caps are well in excess of the TXU purchase price. There are a handful of venture backed companies with private market values in excess of $50 and $100 billion that could break the venture record for value at IPO. Finally, though probably more of an outside chance, there are business lines inside leading trillion-dollar technology companies that may be candidates to be divested and acquired as big tech navigates the ongoing anti-trust crackdown.

4. Nuclear’s Benjamin Button imitation: AI will be the elixir for aging backwards

Since the launch of ChatGPT and the acceleration of all things AI back in November of 2022, how the world has changed. We have seen the public stock prices of NVDIA, Meta, Apple, Google, and Microsoft drive the S&P to record gains.4 OpenAI, xAI, Anthropic and others have similarly raised billions to fund their LLMs.

This has raised a series of questions: Who wins in this AI of Everything world? The large cap incumbents that own the data? The new entrant startups that own the technology? Maybe it’s neither.

The rise of AI has driven energy usage to record levels, serving as a catalyst for alternative energy sources including solar, wind, natural gas, and nuclear.5 Record investment by big tech, innovation capital led by venture capital, and government incentives around nuclear, will reactivate an energy source first put online in 1951 and set on a path to retirement in 2012.6 Let’s keep it clean!

5. “When the levee breaks” ~ Led Zeppelin

I may be overly optimistic, but I expect “liquidity” to be 2025’s word of the year — not because of the lack of it, but because of the amount of it.

Why? Bid-ask spreads narrowed in the second half 2024 – something we expect to continue into 2025. Dry powder also continues to be quite high. Most funds have five-year investment periods, and those clocks are ticking, making it the time to spend.

Further, many companies refinanced their debt at very favorable terms during and just after Covid. If a company capitalized itself in 2021 with a 5-year term loan, it needs to be thinking about the approaching refinancing event. In many cases, this will be the trigger for sponsors to say: “Time to cash out and let the next sponsor capitalize the balance sheet!”

For the sellers, due to the no sale decision due to bid-ask spread, hold periods have been extended. Typically, a company in a 10-year fund is in the portfolio for 4-5 years. The no sell decision has now extended hold periods to as long as 7 years or more. We believe this is another catalyst for sellers to finally let go and the trading of assets to pick up in 2025.

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6. Private wealth is not coming — it's here and may bifurcate the market

If I am wrong on liquidity as the word of the year, it will be because private wealth stole the show.

In the US and Europe, less than 5% of companies that make up their economies are publicly traded. Today, there seem to be more companies going private than going public. If an investor wants to invest across the entire economy, access the other 95%, they need to allocate to private markets. Institutions have been doing this for decades and now new channels providing pipes into private markets are becoming available to individuals. This is happening through various access points including wealth, retail, and retirement plans.

Further, these investors want their investment packaged differently. We have seen notable innovations related to this type of demand.

As a result, we may see private markets bifurcate. This will test the thesis around the illiquidity premium — or it may segment the asset class. We’ll have to wait and see.

Footnotes
  1. https://www.fortunebusinessinsights.com/industry-reports/artificial-intelligence-market-100114 and https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/space-the-1-point-8-trillion-dollar-opportunity-for-global-economic-growth
  2. PitchBook
  3. https://www.cnbc.com/2018/08/07/here-are-the-top-10-largest-leveraged-buyouts-in-history.html and  https://www.forbes.com/sites/tomiogeron/2012/05/17/facebook-prices-ipo-at-38-per-share/
  4. https://www.nytimes.com/2024/10/22/business/dealbook/sp-500-rally-markets.html
  5. https://www.forbes.com/sites/sumantsinha/2024/02/26/ai-can-power-the-green-energy-transition/
  6. https://www.constellationenergy.com/newsroom/2025/constellation-wins-record-setting-federal-government-clean-nuclear-energy-procurement.html
Disclosure

HarbourVest Partners, LLC (“HarbourVest”) is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes; the information should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy.  In addition, the information contained in this document (i) may not be relied upon by any current or prospective investor and (ii) has not been prepared for marketing purposes. In all cases, interested parties should conduct their own investigation and analysis of the any information set forth herein and consult with their own advisors. HarbourVest has not acted in any investment advisory, brokerage or similar capacity by virtue of supplying this information.  The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy or completeness of such information. The information is subject to change without notice and HarbourVest has no obligation to update you.  There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest. 

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Professional Investor Definition

“Professional Investor” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and its subsidiary legislation) means:

(a) any recognised exchange company, recognised clearing house, recognised exchange controller or recognised investor compensation company, or any person authorised to provide automated trading services under section 95(2) of the SFO;

(b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong;

(c) any authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;

(d) any insurer authorized under the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong), or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong;

(e) any scheme which-

(i) is a collective investment scheme authorised under section 104 of the SFO; or

(ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place,

or any person by whom any such scheme is operated;

(f) any registered scheme as defined in section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong), or its constituent fund as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A of the Laws of Hong Kong), or any person who, in relation to any such registered scheme, is an approved trustee or service provider as defined in section 2(1) of that Ordinance or who is an investment manager of any such registered scheme or constituent fund;

(g) any scheme which-

(i) is a registered scheme as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong); or

(ii) is an offshore scheme as defined in section 2(1) of that Ordinance and, if it is regulated under the law of the place in which it is domiciled, is permitted to be operated under the law of such place,

or any person who, in relation to any such scheme, is an administrator as defined in section 2(1) of that Ordinance;

(h) any government (other than a municipal government authority), any institution which performs the functions of a central bank, or any multilateral agency;

(i) except for the purposes of Schedule 5 to the SFO, any corporation which is-

(i) a wholly owned subsidiary of-

(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or

(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;

(ii) a holding company which holds all the issued share capital of-

(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or

(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong; or

(iii) any other wholly owned subsidiary of a holding company referred to in subparagraph (ii); or

(j) any person of a class which is prescribed by rules made under section 397 of the SFO for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of the SFO, or to the extent that it is prescribed by rules so made as within the meaning of this definition for the purposes of any provision of the SFO.

The first of such classes of additional “professional investor”, under the Securities and Futures (Professional Investor) Rules (Cap. 571D of the Laws of Hong Kong), are:

(k) any trust corporation (registered under Part VIII of the Trustee Ordinance (Cap. 29 of the Laws of Hong Kong) or the equivalent overseas) having been entrusted under the trust or trusts of which it acts as a trustee with total assets of not less than HK$40 million or its equivalent in any foreign currency at the relevant date (see below) or-

(i) as stated in the most recent audited financial statement prepared-

(A) in respect of the trust corporation; and

(B) within 16 months before the relevant date;

(ii) as ascertained by referring to one or more audited financial statements, each being the most recent audited financial statement, prepared-

(A) in respect of the trust or any of the trust; and

(B) within 16 months before the relevant date; or

(iii) as ascertained by referring to one or more custodian (see below) statements issued to the trust corporation-

(A) in respect of the trust or any of the trusts; and

(B) within 12 months before the relevant date;

(l) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio (see below) of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or-

(i) as stated in a certificate issued by an auditor or a certified public accountant of the individual within 12 months before the relevant date; or

(ii)  as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;

(m) any corporation or partnership having-

(i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or

(ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date, or as ascertained by referring to-

(iii) the most recent audited financial statement prepared-

(A) in respect of the corporation or partnership (as the case may be); and

(B) within 16 months before the relevant date; or

(iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and

(n) any corporation the sole business of which is to hold investments and which at the relevant date is wholly owned by any one or more of the following persons-

(i) a trust corporation that falls within the description in paragraph (k);

(ii) an individual who, either alone or with any of his or her associates on a joint account, falls within the description in paragraph (k);

(iii) a corporation that falls within the description in paragraph (m);

(iv) a partnership that falls within the description in paragraph (m).

For the purposes of paragraphs (k) to (n) above:

  • “relevant date” means the date on which the advertisement, invitation or document (made in respect of securities or structured products or interests in any collective investment scheme, which is intended to be disposed of only to professional investors), is issued, or possessed for the purposes of issue;
  • “custodian” means (i) a corporation whose principal business is to act as a securities custodian, or (ii) an authorised financial institution under the Banking Ordinance (Cap. 155 of the Laws of Hong Kong); an overseas bank; a corporation licensed under the SFO; or an overseas financial intermediary, whose business includes acting as a custodian; and
  • “portfolio” means a portfolio comprising any of the following (i) securities; (ii) certificates of deposit issued by an authorised financial institution under the Banking Ordinance (Cap, 155 of the Laws of Hong Kong) or an overseas bank; and (iii) except for trust corporations, cash held by a custodian.

Institutional Investor / Accredited Investor Definition

An institutional investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:

(a) the Singapore Government;

(b) a statutory board as may be prescribed by regulations made under section 341 of the SFA, as prescribed in the Second Schedule of the Securities and Futures (Classes of Investors) Regulations 2018;

(c) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is —

(i) to manage its own funds;

(ii) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or

(iii) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;

(d) any entity —

(i) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and

(ii) whose funds are managed by an entity mentioned in sub‑paragraph (c);

(e) a bank that is licensed under the Banking Act 1970;

(f) a merchant bank that is licensed under the Banking Act 1970;

(g) a finance company that is licensed under the Finance Companies Act 1967;

(h) a company or co‑operative society that is licensed under the Insurance Act 1966 to carry on insurance business in Singapore;

(i) a company licensed under the Trust Companies Act 2005;

(j) a holder of a capital markets services licence;

(k) an approved exchange;

(l) a recognised market operator;

(m) an approved clearing house;

(n) a recognised clearing house;

(o) a licensed trade repository;

(p) a licensed foreign trade repository;

(q) an approved holding company;

(r) a Depository as defined in section 81SF of the SFA;

(s) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere;

(t) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;

(u) a designated market‑maker as defined in paragraph 1 of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations;

(v) a headquarters company or Finance and Treasury Centre which carries on a class of business involving fund management, where such business has been approved as a qualifying service in relation to that headquarters company or Finance and Treasury Centre under section 43D(2)(a) or 43E(2)(a) of the Income Tax Act 1947;

(w) a person who undertakes fund management activity (whether in Singapore or elsewhere) on behalf of not more than 30 qualified investors;

(x) a Service Company (as defined in regulation 2 of the Insurance (Lloyd’s Asia Scheme) Regulations) which carries on business as an agent of a member of Lloyd’s;

(y) a corporation the entire share capital of which is owned by an institutional investor or by persons all of whom are institutional investors;

(z) a partnership (other than a limited liability partnership within the meaning of the Limited Liability Partnerships Act 2005) in which each partner is an institutional investor.

An accredited investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:

(i)  an individual —

(A) whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;

(B) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means —

(BA) a deposit as defined in section 4B of the Banking Act 1970;

(BB) an investment product as defined in section 2(1) of the Financial Advisers Act 2001; or

(BC) any other asset as may be prescribed by regulations made under section 341; or

(C) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;

(ii)  a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —

(A) the most recent audited balance sheet of the corporation; or

(B) where the corporation is not required to prepare audited accounts regularly, a balance sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet, which date must be within the preceding 12 months;

(iii) A trustee of a trust which all the beneficiaries are accredited investors; or

(iv) A trustee of a trust which the subject matter exceeds S$10 million; or

(v) An entity (other than a corporation) with net assets exceeding S$10 million (or its equivalent in a foreign currency) in value. “Entity” includes an unincorporated association, a partnership and the government of any state, but does not include a trust; or

(vi) A partnership (other than a limited liability partnership) in which every partner is an accredited investor; or

(vii) A corporation which the entire share capital is owned by one or more persons, all of whom are accredited investors.

Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).