Hedge fund hunger for private markets continues to grow

Meanwhile, private markets are clearly already very popular among institutional investors, a majority of whom had increased their exposure to private equities, infrastructure and credit in 2024. Moreover, 41% had increased their exposure to private real estate, despite the well-known problems affecting the asset class.

Factors such as investors’ search for higher yields, increasing numbers of high-net-worth individuals with more investable wealth, and the largest intergenerational transfer of wealth in history have powered the growth of private markets.

There are also advantages to companies in going or staying private. Regulation standards in private company governance models are higher, while increasing costs and the daily, quarterly and annual public-market disclosure requirements are a further incentive to remain private.

North America (particularly the US) dominates the market, accounting for more than half of AUM, followed by Asia, Europe and the rest of the world. This split reflects the fact that Asian and European funds started out a lot later than those in the US.

Global private-equity fundraising declined for the third consecutive year in 2024, largely due to a weak exit environment. Private-equity funds worldwide secured $680.04 billion in 2024, a 30% decrease from the $966.37 billion raised in 2023, S&P Global Market Intelligence data shows. The amount of capital raised has declined since 2021, when it peaked at about $1.119 trillion.¹

Liquidity issues have acted as a constraint: since investors haven’t received that much cash back from existing fund positions, they haven’t been redeploying capital. Global private-equity exits fell to a five-year low of $392.48 billion in 2024, primarily because of a mismatch in valuation expectations between buyers and sellers, according to S&P.²

Many participants expect the private-equity market to pick up in 2025, particularly in the US, as interest rates continue to decline and the economy improves. The market will also benefit from tech-driven growth as investors continue to look for opportunities in artificial intelligence (AI) and other technology firms.

Private credit should also continue to grow rapidly, fuelled by structural factors such as stricter banking regulation and the withdrawal of bank lending. Lower interest rates, declining default risk and recovering economic growth will also spur the market, which Moody’s expects to grow to $3 trillion in AUM by 2028.³

Some analysts, such as Blackstone, the world’s largest alternatives manager, believe further rapid growth can be expected. In June, Blackstone Credit and Insurance’s global chief investment officer, Michael Zawadzki, told Bloomberg Television the market could hit the $25 trillion mark. According to Zawadzki, that reflects the need to finance data centres and the energy transition.⁴

The private-equity real-estate industry has expanded significantly, achieving a global invested AUM of $1.2 trillion, according to Oxford Economics.⁵ Higher interest rates and economic uncertainty have affected public and private real-estate markets in recent years. The other major sectors of private markets are infrastructure and real assets.

The transfer of intergenerational wealth, a global trend towards delisting, and companies opting to stay private for longer suggest that private capital markets are set for further rapid growth.

A growing number of hedge funds are allocating larger chunks of their portfolios to private-market assets, chasing compelling opportunities and competing for many of the same investments traditionally pursued by private-equity and venture-capital funds. A report issued by KPMG in September 2024 found that 49% of hedge funds had complemented their traditional investment strategies with private markets or other new products or strategies.⁶

IG Prime believes the results of our survey confirm the growing strong interest in private markets among hedge fund managers and their investors, and we expect exposure to continue to increase in all areas of the market.

Download our state of the hedge fund industry report

As part of our aim to be at the forefront of the hedge fund industry, IG Prime commissioned a survey into the attitudes of hedge funds and institutional investors to key issues facing the industry in 2024 and 2025. The results help inform our State of the Hedge Fund Industry 2025 report. The first of a forward-looking annual series, this year’s report seeks to explain why the industry may have reached a turning point, with returns and asset growth set to improve – possibly markedly – in the coming years. Click here to download the full report now.

Sources
¹ https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/global-private-equity-fundraising-sinks-for-3rd-straight-year-87110906
² https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/global-private-equity-fundraising-sinks-for-3rd-straight-year-87110906
³ https://www.moodys.com/web/en/us/insights/credit-risk/outlooks/private-credit-2025.html
⁴ https://www.bloomberg.com/news/articles/2024-06-28/blackstone-s-zawadzki-sees-private-credit-as-25-trillion-market
⁵ https://www.oxfordeconomics.com/resource/global-private-equity-real-estate-fund-maturities-spur-asset-sales/
⁶ https://kpmg.com/xx/en/media/press-releases/2021/12/global-hedge%20fund-industry.html