Braced for

shifting weather
McKinsey Global Private Markets Report 2025

May 2025
Welcome to McKinsey’s Global Private Markets Report 2025

Conditions for global private markets were decidedly mixed in 2024. Dealmaking remained
tepid, for instance, while fundraising across all asset classes fell to its lowest level since 2016, even
as the performance of public markets increased. Yet capital deployment increased by double
digits across asset classes, as managers adapted to a world of interest rates structurally higher
than in previous years. Investor interest and confidence in private markets remained strong.
In McKinsey’s latest survey of the world’s leading LPs, investors say that they will allocate more
capital, not less, to private markets over the coming year.

Conditions are likely to remain uneven for private markets. At the time of this report’s publication,
geopolitical instability and changes in trade policy are emerging as critical challenges for
managers and investors. Meanwhile, innovation in technology, particularly the rapid advancement
of generative AI, has compelled leaders in private markets to build new capabilities in their quest
to find more value.

What struck us most when writing this report, however, is the resilience shown by private market
stakeholders as they navigate an industry in transition. Fundraisers are looking beyond closed-
end channels to raise capital in new vehicles, such as evergreen funds. Dealmakers and operators
are moving from traditional financial engineering to focus on sustained operational transformation.
And LPs are moving from being passive allocators to investing in GPs themselves (as thriving
secondaries and GP stakes markets reveal).

In the first part of the report, we analyze how private equity, real estate, private debt, and
infrastructure asset classes fared in 2024. In the second part, we share our perspectives on
three pressing issues that cut across asset classes: the exit backlog in PE, the rise of alternative
sources of capital, and the increasingly attractive world of secondaries and GP stakes.

The perspectives shared here are based on our long-running research on private markets, our
proprietary data, industry-leading data from external partners, and our experience in the field,
working hand in hand with global investors, asset owners, and capital allocators.

We hope you enjoy reading and look forward to hearing from you.

Alexander Edlich Christopher Croke Fredrik Dahlqvist Warren Teichner

Senior Partner, Partner, Senior Partner, Senior Partner,
New York London Stockholm New York

Braced for shifting weather 1

 Contents
3 Asset classes in review
4 Private equity emerging from the fog
8 Dealmakers: Bouncing back, especially at the top
18 Fundraisers: Enduring pressure, but the outlook is bright
23 LPs: Distribution growth offsetting muted returns
28 Operators: The value creation imperative endures
31 Real estate reaches for daylight
33 Dealmakers: Capitalizing on renewed growth
38 Fundraisers: Navigating uncertain terrain
41 LPs: Repositioning in a shifting market
44 Private debt remains steady in the crosswinds
45 Dealmakers: Growth in private debt issuance
50 Fundraisers: Direct lending remains strong amid a cooling market
53 LPs: Subdued but consistent performance
55 Infrastructure poised for clearer conditions
57 Dealmakers and operators: Regaining their stride
59 Fundraisers: Facing ongoing hurdles

64 Industry deep dives

65 Alternative assets get more alternative: The rise of novel AUM forms
66 Why are alternative sources of capital proliferating?
68 What value is at stake?
70 What’s the path forward for GPs?
72 Private equity’s path to clearing the historic exit backlog
74 Private equity’s exit challenge
76 Preparing for an exit
79 Secondaries and GP stakes: The next wave of private market innovation
80 Secondaries sustain upward momentum
85 GP stakes: A nascent but growing strategy

89 Authors

89 Further insights

90 Acknowledgments

2 Braced for shifting weather

Asset classes
in review

Braced for shifting weather 3

 Private equity
emerging from
the fog
Global uncertainties remained in 2024, but the path
forward for private equity became clearer, with a rebound
in dealmaking and distributions.

4 Braced for shifting weather

To the casual observer, 2024 may have felt like yet another difficult year for private equity (PE)
globally. Fundraising remained tough—down 24 percent year over year for traditional
commingled vehicles, marking the third consecutive year of decline. Investment returns were
muted, especially compared with buoyant public markets.

Our analysis reveals a more nuanced picture. After two years of murky conditions, PE started to
emerge from the fog in 2024.

For one, the long-awaited uptick in distributions finally arrived. For the first time since 2015,
sponsors’ distributions to LPs exceeded capital contributions (and were the third highest on
record).1 This increase in distributions arrived at an important time for LPs. In our 2025 proprietary
survey2 of the world’s leading LPs, 2.5 times as many LPs ranked distributions to paid-in capital
(DPI) as a “most critical” performance metric, compared with three years ago. There was also a
rebound in dealmaking after two years of decline, with a notable increase in the value and
number of large PE deals (above $500 million in enterprise value). Exit activity, in terms of value,
started to whir again as well, especially sponsor-to-sponsor exits.

This resurgence was powered by a much more benign financing environment. The cost of financing
a buyout declined (even though it remains much higher than the ten-year average), and new-
issue loan value for PE-backed borrowers almost doubled. In a sign of sponsors’ confidence amid
improving financing conditions (spurred by monetary easing), entry multiples increased after
declining in 2023, as sponsors could sell more companies at a higher average price per company.

The contrast between the past three years and the prior period could not have been starker.
The rapid run-up in global interest rates from 2022 to 2023 (an increase of more than 500 basis
points in the United States) shook PE to the core, an industry that had acclimated to cheap
leverage for nearly a decade. There was a raft of other macroeconomic challenges too, including
persistent inflation and increased geopolitical uncertainty. These and other headwinds
prompted a slump in dealmaking while creating unanticipated disruptions in portfolio companies.
They also complicated managers’ ability to determine the true earnings of target companies,
especially those purchased at lofty valuations in the aftermath of the COVID-19 pandemic.
Even investors with near-term liquidity requirements—and conviction in the long-term value of
potential acquisitions—struggled to execute deals in a cautious lending environment.

But PE is now starting to surface from these challenges—likely more resilient and durable than
before. In our LP survey, 30 percent of respondents said they plan to increase their PE
allocations in the next 12 months. Beyond offering LPs diversification, the continued appeal of
the asset class can also be explained by its long-term performance trajectory. Since the turn
of the millennium, PE has outpaced the S&P 500—rewarding those investors who can stomach
the relatively lower liquidity that typically characterizes PE investments.

1
Data is from the first half of 2024 only.
2
January 2025, n = 333.

Braced for shifting weather 5

 GPs, too, are evolving and innovating. In 2024, total global PE assets under management (AUM)
appeared to decline3 by 1.4 percent by the traditional measure of closed-end commingled funds.
Yet this drop does not capture the novel ways in which GPs are unlocking alternative sources of
capital, such as from separately managed accounts, co-investments, and partnerships. These
alternative forms of capital have provided a multitrillion-dollar boost to global PE AUM. GPs are
also increasingly sourcing new funds from noninstitutional investors, such as high-net-worth
individuals. They do this through multiple channels (such as aggregators and wealth managers)
and with multiple vehicles (such as open-end and semi-open-end funds)—all of which are more
accessible than traditional closed-end vehicles to retail and high-net-worth investors.

To address growing liquidity demands from LPs, an increasing number of GPs are creating new
fund structures, including setting up continuation vehicles. And they are increasingly expanding
their use of deal structures such as public-to-private (P2P) transactions and carve-outs, to
accelerate deployment. In Europe, where P2P activity has historically been subdued, the total
value of P2Ps was up 65 percent in 2024.

Meanwhile, scale continues to provide a competitive advantage to managers: Over the past
five years, the top 100 GPs made approximately three times more acquisitions of competing GPs
than they did in the previous five years. This scale could provide GPs with more flexibility and
help them diversify income streams; although, its correlation with performance or fundraising is
unclear (smaller, midmarket funds proved easier to raise in 2024 than the largest funds).

Of course, the fog hasn’t entirely cleared: There were some industry pockets that continued to
face rough weather. Venture capital (VC) recorded a bigger decline in deal count and lower
growth in deal value than other PE subasset classes globally. Across asset classes, Asia lagged
behind North America and Europe year over year in fundraising (driven principally by a retreat
from China), performance, and deal activity. As the fog lifts, we can more clearly see those in
peril—even within better-performing asset classes like buyouts. Some funds are facing twin
pressures of elevated marks and the inability to sell their portfolio companies. Over time, the
spread between better-differentiated and better-performing funds and less-differentiated
and worse-performing funds may widen.

The PE industry will also need to monitor and address other challenges. It is uncertain, for now,
whether or for how long the hangover from the exuberant dealmaking of 2021 and 2022 will last.
The exit backlog of sponsor-owned companies is bigger in value, count, and as a share of total
portfolio companies than at any point in the past two decades. Selling these assets, especially
when the marks are likely to remain elevated on many sponsors’ books (given high entry
multiples in 2021 and the increasing role of GP-led secondaries, which often bring exits below
marks), will require more than just high hopes that the market will turn. Refinancing those
portfolio companies in an uncertain, higher-rate, and more discerning lending environment will
also be challenging. Meanwhile, investors and operators need to consider increasing geopolitical

3
From the end of 2023 through the first half of 2024.

6 Braced for shifting weather

uncertainty—for example, the threat of tariffs—as they underwrite and drive value creation
initiatives. All stakeholders must also confront rapid evolutions in AI. What is top of mind for the
investors and operators we work with is building best-in-class data science teams within fund
operations, developing AI-enabled value creation initiatives that can drive portfolio-wide impact,
and scaling external AI partnerships.

In this first article from our flagship Global Private Markets Report, we analyze how PE fared in
2024—and what it might mean for the year ahead. We consider this from the perspective of
four groups: dealmakers, fundraisers, LPs, and the operators tasked with creating value in
privately held firms.

Web <2025> PDF ONLY

<MCK252140 Private Markets Heatmap > (Static version of “global all PE, all deal sizes” in interactive version)
Heat
Exhibit map
<x> of <x>

The heat map shows key metrics across private equity asset classes.

Global private equity, all deal sizes

Negative for Positive for Macro environment GPs LPs

PE industry PE industry

2019 2020 2021 2022 2023 2024

Interest rate (%) 1

2.2 0.4 0.1 1.7 5.0 5.1

Inflation rate (%) 3.5 3.3 4.7 8.6 6.7 5.8

Deal value (% year-over-year [YOY] growth) 2 –8 98 –22 –25 14

Deal count (% YOY growth) 4 3 41 –5 –18 –13

PE-backed exit deal value (% YOY growth)2 –8 –11 54 –16 –6 –14

PE-backed exit deal count (% YOY growth)2 –20 32 102 –54 –4 8

Median buyout entry multiples (purchase price/EBITDA)3 10.0× 11.2× 11.8× 12.0× 11.2x 11.9×

Fundraising of close-end commingled funds (% YOY growth) 13 –10 36 –7 –12 –24

LP PE target allocation (%)4 6.1 6.3 6.8 7.5 8.2 8.3

Capital calls in excess of distributions (% of distributions)5 25 23 3 20 23 –14

1-year pooled IRR for 2000−21 vintage funds (%)6 18 34 40 –8 6 4

Note: Deal size filter only affects deal value, deal count, private equity (PE)–backed exit deal value, and PE-backed exit deal count metrics.
1
Average annual central bank interest rate: Effective federal funds rate is used as a proxy for North America, China’s 1-year medium-term lending facility rate as
a proxy for Asia, and European Central Bank’s main refinancing operations rate as a proxy for Europe.
2
Exits of PE investments: PE investments include those made by PE investors as well as by some additional investor types into mature companies. Excludes
venture capital. Capital calls in excess of distributions and PE-backed exits reported only for all PE.
3
Median buyout entry multiples data reported only for global buyout. Buyout figures displayed for all global PE as proxy. Data on capital calls in excess of
distributions, IRR, and median buyout entry multiples as of Q3 2024.
4
LP PE target allocation data reported only for all global PE.
5
Excludes venture capital. Data on capital calls in excess of distributions, IRR, and median buyout entry multiples as of Q3 2024. A negative value indicates that
distributions have exceeded contributions in given year.
6
Data on capital calls in excess of distributions, IRR, and median buyout entry multiples as of Q3 2024.
Source: CEM Benchmarking; European Central Bank; Federal Reserve Bank of St. Louis; International Monetary Fund; MSCI; People’s Bank of China;
PitchBook; Preqin; StepStone Group

McKinsey & Company

Braced for shifting weather 7

 Dealmakers: Bouncing back, especially at the top
Global PE dealmaking rebounded significantly in 2024 after two years of decline, rising by
14 percent to $2 trillion (Exhibit 1). The uptick in activity made 2024 the third-most-active
year on record for the asset class by value. Deal value increased across buyout, growth equity,
and venture capital subasset classes but declined steeply in Asia (see sidebar “Asia’s
private equity slowdown”).

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit
Exhibit <1>1 of <21>

Private equity deal value increased 14 percent after two years of decline.

Total North America Europe Asia Rest of world

Global private equity deal value, Global private equity deal count,
by region, $ billion1 by region, thousands of deals1
3,200 80

2,800 70

2,400 60

2,000 50

1,600 40

1,200 30

800 20

400 10

0 0
2015 2018 2021 2024 2015 2018 2021 2024
1
Includes private equity buyout and leveraged buyout (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition,
management buyout, management buy-in, privatization, recapitalization, public-to-private transaction, and secondary buyout), PE growth and expansion
(recapitalization, dividend recapitalization, and leveraged recapitalization), platform creation, and funding in angel stage, seed round, early-stage venture capital
(VC), and later-stage VC, as well as restart of funding stages.
Source: PitchBook

McKinsey & Company

8 Braced for shifting weather

Sidebar

Asia’s private equity slowdown

Asia was the only region that saw a decline in In contrast to Asia, North American and
assets under management (AUM) last year, European PE AUM increased at 4.4 percent and
dropping by 5.5 percent to $2.7 trillion (exhibit). 3.0 percent, respectively, from the first half of
This was accompanied by a continued drop 2023 to the first half of 2024. The AUM growth
in fundraising (32 percent lower in 2024), led in both regions was driven by NAV increases
primarily by declines in China, as well as and subdued by dry powder declines (with deal
lackluster performance (less than 0.2 percent IRR volumes rising and fundraising slowing).
through the first three quarters of 2024). As a North America and Europe’s PE NAV rose by
result, private equity (PE) net asset value (NAV) 8.8 percent and 9.2 percent, respectively,
and dry powder both declined in the region, falling while dry powder declined by 6.8 percent and
2.3 percent and 20.0 percent, respectively. 10.2 percent, respectively.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit
Exhibit <20> of <21>

Asia was the only region to record a decline in assets under management
for closed-end, commingled private equity funds.
Private equity assets under management in 2000–H1 2024, 4.5-year CAGR, Growth,
by region, $ trillion1 2019–H1 2024, H1 2023–
% H1 2024, %
10
Total 13.6 1.0

North America 17.0 4.4

8
Asia 8.8 –5.5

6 Europe 14.0 3.0

Rest of world 10.8 3.8

0
2000 2003 2006 2009 2012 2015 2018 2021 H1
2024
1
Includes buyout, growth, venture capital, and other private equity. Excludes secondaries, funds of funds, and co-investment vehicles.
Source: Preqin; McKinsey analysis

McKinsey & Company

Braced for shifting weather 9

 Meanwhile, the number of PE deals across subasset classes4 dropped for a third consecutive
year, largely because of the continued decline in venture capital’s dealmaking velocity, which saw
a 16.9 percent year-over-year drop in count (see sidebar “Venture capital’s continued crunch”).
Additionally, the global deal count for buyouts decreased marginally by 1.7 percent, with year-
over-year growth among larger deals in North America (Exhibit 2).

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 2
Exhibit <2> of <21>

Buyout deal count as a share of total deal count and buyout deals larger
than $500 million as a share of deal value increased in 2024.
North America buyout deal count, by deal size, % of total buyout deal count1

4 7 7 9 8 10 9 11
5 13 15 12 16
16 19 17
7 22 >$1 billion
11 8 9 9
11 9 10
20 12 11 9
13 9
11 9 $500 million–1 billion
28
27 28 30 29
28 26 25
28 27
31 29 $100 million–
27 26 26
499 million

71

56 59
55 52 54 53 53
51 48
47 44 44 43 44 43 <$100 million

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Buyout deals
34 43 36 39 47 42 48 40 47 43 45 38 46 44 38 44 >$500 million,
% of deal value1

Note: Figures may not sum to 100%, because of rounding.

1
Includes PE buyout/LBO (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition, management buyout, management
buy-in, privatization, recapitalization, public-to-private, secondary buyout) and platform creation deals in North America.
Source: PitchBook; McKinsey analysis

McKinsey & Company

4
Buyout, growth equity, and venture capital.

10 Braced for shifting weather

Sidebar

Venture capital’s continued crunch

In 2023, fundraising for venture capital declined capital has also remained far more challenged
by nearly 58 percent year over year. In 2024, than for buyouts across 2023 and 2024.
the rate of decline was lower (fundraising for While buyout’s deal value rebounded by
buyouts, venture capital, and growth equity each 15.5 percent in 2024, it was only 6.7 percent
declined by 23 percent to 25 percent), but the higher for venture capital. There was a
strategy continues to struggle across several noticeable gap in deal count as well: Buyout
metrics. This poor performance is indicative deal count fell by 1.7 percent compared with
of the ongoing challenges of the start-up venture capital’s 16.9 percent drop.
environment globally, as well as continued
declines in Asia, a region that comprises There was some silver lining for the strategy
more than half of venture capital’s total assets last year: A marginal improvement in venture
under management (exhibit). capital’s performance (an IRR of 1.9 percent
through September 30, 2024, versus a negative
Consider this: Last year’s $102 billion fundraising IRR of 2.5 percent in the preceding 12 months).
total for venture capital was less than a third Even then, buyout strategy outperformed venture
of 2022’s $314 billion. Deal activity in venture capital, with an IRR of 4.5 percent.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit
Exhibit <21> of <21>

Venture capital led the decline in closed-end, commingled private equity

assets under management in 2024.
Private equity assets under management by asset class, 4.5-year CAGR, Growth,
2000–H1 2024, $ trillion1 2019–H1 2024, H1 2023–
% H1 2024, %
10
Total 13.6 1.0

Buyout 14.3 4.0

8
Venture capital 13.9 –4.4

6 Growth 12.8 6.4

Other private 7.9 –4.7

equity
4

0
2000 2003 2006 2009 2012 2015 2018 2021 H1
2024
1
Excludes secondaries, funds of funds, and co-investment vehicles.
Source: Preqin; McKinsey analysis

McKinsey & Company

Braced for shifting weather 11

 A look at what dealmakers paid and how they financed their deals suggests increased confidence
in deployment. Consider the entry EBITDA multiples in the buyout subasset class, which
reverted to 2021–22 levels, after decreasing in 2023 (Exhibit 3). The overall increase in multiples
is a positive sign, although some of it may also be attributed to a change in the quality mix, where
sponsors are exiting higher-quality businesses that are achieving better valuations.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 3
Exhibit <3> of <21>

Median global buyout entry multiple in 2024 was the second highest on
record, rebounding alongside deal value following a 2023 decrease.
Median global buyout entry multiples and total buyout deal value
Median global buyout entry multiple, purchase price/EBITDA1
12x
11.8 12.0 11.9
11.2 11.2

9.8 10.0
9x
9.2
8.5 8.6
8.3
7.6 7.4 7.7 7.4
6x 6.5

3x

0
2009 2012 2015 2018 2021 2024

Total global buyout deal value, $ billion2

2,100

1,800

1,500

1,200

900

600

300

0
2009 2012 2015 2018 2021 2024
1
As of Sept 30, 2024.
2
Includes private equity buyout and leveraged buyout (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition,
management buyout, management buy-in, privatization, recapitalization, public-to-private transactions, and secondary buyout) and platform creation.
Source: PitchBook; SPI by StepStone

McKinsey & Company

12 Braced for shifting weather

PE financing costs eased as lender spreads and Secured Overnight Financing Rates (SOFR)
declined in mid-to-late 2024, driven by reduced risk premiums and stabilizing rate expectations.
GPs also levered their deals marginally more in 2024, at roughly 4.1 times net debt to EBITDA,
versus 4.0 times in 2023, reflecting improved debt availability and lenders’ willingness to
underwrite larger capital structures. However, buyout leverage remains below the ten-year
average of 4.2 times and well below the 4.7 times high in 2021, indicating that while credit
conditions have loosened, underwriting discipline and valuation pressures still constrain
leverage expansion.

With active deployment and fewer capital calls, GPs began to draw down on the global stock of
dry powder—the amount of capital committed but not yet deployed. Global PE dry powder
decreased 11 percent (to $2.1 trillion) between the first half of 2023 and the first half of 2024.
Similarly, dry powder inventory—or the amount of capital available to GPs, expressed as a
multiple of annual deployment—fell to 1.89 years in 2024, from 2.02 in the prior year, hovering
around historical levels (Exhibit 4).

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 4
Exhibit <4> of <21>

Global inventories of private equity dry powder decreased in 2024.

Years of private equity inventory on hand, turns1 In year 3-year trailing

4.0

3.0

2.0

1.0

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: 1 turn of private equity inventory equivalent to 1 year of deployment based on historical deal value.
1
Capital committed but not deployed divided by equity deal value. Equity deal value estimated using transaction value and leverage figures for full year. Dry
powder for 2024 based on figure as of June 30, 2024.
Source: PitchBook; Preqin

McKinsey & Company

Braced for shifting weather 13

 Our analysis points to five global trends in dealmaking.

Bigger is back
Nowhere was the overall rebound more evident than in large buyout transactions in North
America and Europe. Deals above $500 million in enterprise value rose in both value (37 percent)
and count (3 percent), reflecting the increase in average deal size (Exhibit 5). This segment is
considered a true proxy for industry health, as many of the largest sponsors are often reluctant
to invest below this threshold, given the need to deploy at scale. In our work with investors,
there is a growing willingness among sponsors to write bigger tickets, led by stronger conviction
in their ability to realize higher returns and renewed confidence in the industry’s growth outlook.

Long-term trends in sector allocation persist

PE investors’ buying preferences continue to evolve. Sectors like technology outperformed
(2024 was the third highest on record in terms of deal value), while healthcare continued its post-
COVID-19 retreat (Exhibit 6). These trends hold across deal sizes: As often happens, larger
sponsors’ buying preferences can be mirrored in the investment choices of smaller sponsors
that are looking to sell to them.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 5
Exhibit <5> of <21>

The rebound in private equity dealmaking was led by an increase in buyout

transactions over $500 million.

Total North America Europe Asia Rest of world

Global buyout deal value for deals >$500 million, Global buyout deal count for deals >$500 million,
$ billion1 number of deals1
1,000 500

800 400

600 300

400 200

200 100

0 0
2015 2018 2021 2024 2015 2018 2021 2024
1
Includes buyout and leveraged buyout (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition, management buyout,
management buy-in, privatization, recapitalization, public-to-private transactions, and secondary buyout) and platform creation.
Source: PitchBook

McKinsey & Company

14 Braced for shifting weather

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 6
Exhibit <6> of <21>

Technology, consumer, and financial-services sectors drove the recovery in

large private equity deals.
Global private equity deal value, by sector, $ billion1 3,064
112
143

235

2,383
432 75
168
2,048
175 71
1,796 135
568 280
1,643 1,682 77 208
56 1,545 117
75 124
1,450 111 46 359 149 217
52 122 70
1,301 127 118
134 215
45 1,194 232 337
109 116 210 242 751
49
131 111 263
193
129 86 368 680
352 295
134
287 525
304 535
252
410 434 353
297 395
294 823
647
554
421 439
267 273 358 345
287

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
All private equity deals Private equity deals >$500 million
2019–24 CAGR, % 2023–24 CAGR, % 2019–24 CAGR, % 2023–24 CAGR, %
Materials and resources 4.9 –7.8 11.8 0.7

Energy 1.7 15.4 –1.7 51.0

Financial services 11.2 39.7 15.0 110.0

Healthcare –1.3 1.0 –8.7 –1.3

Consumer products and services (B2C) –1.8 27.8 –0.4 57.5

Business products and services (B2B) 3.9 –1.9 –0.2 –16.8

Technology 9.9 26.3 17.4 51.0

Note: Figures may not sum to totals, because of rounding.

1
Includes private equity buyout and leveraged buyout (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition,
management buyout, management buy-in, privatization, recapitalization, public-to-private transactions, and secondary buyout), PE growth and expansion
(recapitalization, dividend recapitalization, and leveraged recapitalization), platform creation, and funding in angel stage, seed round, early-stage venture capital,
and later-stage VC, as well as restart of funding stages.
Source: PitchBook

McKinsey & Company

Braced for shifting weather 15

 Public companies are becoming more attractive
P2P transactions, especially in Europe, picked up in 2024. Many sponsors likely see merit in
taking undervalued companies private rather than picking over the portfolios of their peers,
despite the challenges involved in executing such transactions, including greater deal complexity,
the need for large take-private premiums in bids, and greater public relations scrutiny.

Although such transactions currently remain a small part of global PE deal value and volume, they
are gaining a growing share. In 2024, P2P deals accounted for 11 percent of total global PE
deal value, compared with 9 percent in 2023. Europe recorded a 65 percent year-over-year
increase in the value of such deals, with increasing participation among US sponsors (who
were represented in nearly 75 percent of P2P deals by value in the past five years, compared with
just 50 percent in the prior decade). The year 2024 also became the second highest on record
in terms of the number of P2P transactions globally.

Exits are warming up but not sizzling

Buying companies is just the start of a dealmaker’s job. Selling them at the right price is what
delivers returns for GPs and LPs. On this front, 2024 saw some improvements. PE-backed exit
value increased by 7.6 percent to $813 billion in 2024 after two years of decline (reaching the
third highest on record), and the average holding period for buyout deals decreased for the first
time since 2020. As with purchasing companies, PE-backed exits larger than $500 million
increased in both count (10 percent) and value (16 percent).

PE portfolios are getting older

Despite improvement in the pace of exits, the backlog of assets that are in their divestment period
is growing globally. Average buyout hold times remain above the long-term average (6.7 years
versus the average of 5.7 years over the past 20 years). In fact, the exit backlog is bigger now
than at any point since 2005. There are more PE-backed companies (comprising a greater
share of total GP portfolios) awaiting exit than ever before. In fact, companies in PE ownership
(excluding add-ons) for more than four years comprised 61 percent of all buyout-backed
assets, up from 55 percent in 2023 and the ten-year average of 53 percent. Although this
reflects the growing influence of private investors in the overall economy 5 (there are more
PE-owned companies), crystalizing their value remains tricky.

As exit periods are extended, there are three key considerations for investors. First, they could
think about value creation over longer time horizons. Our recent LP survey6 shows that LPs are
receptive to longer holding periods if there is consistent value creation during that time. While
IRR is still the top-ranked performance metric, with 35 percent of LPs ranking IRR as critical,
21 percent of LPs now rank multiple of invested capital (MOIC) as critical (up from 15 percent
three years ago). Given MOIC is not weighed down by longer holding periods (unlike IRR), its
growing importance indicates LP receptiveness to longer hold periods (assuming the distributions
still flow). Second, investors could consider exit routes even more thoughtfully. Extended holding
periods due to a lack of suitable exit options can still jeopardize returns. As deals increase in size
(often beyond the limits of even the largest sponsors), the number of potential exit routes

5
For more on the increasing significance of private capital in the UK corporate landscape, see Aiming higher: Embedding
‘systematic ambition’ to drive UK corporate growth, McKinsey, July 15, 2024.
6
January 2025, n = 333.

16 Braced for shifting weather

narrows—sponsors must plan even further ahead in thinking about the “right exit.” Finally,
investors can prepare the ground to ensure sufficient liquidity and reckon with potentially trickier
refinancing conditions, especially as the 2021–22 vintage acquisitions manage their borrowing.

IPOs remain tough

The relative increase in sponsor-to-sponsor exits (up 16 percent by value and 10 percent by share
of deal count) could suggest some long-awaited narrowing of bid–ask spreads, as sellers become
more realistic about expected valuations (Exhibit 7). But even as equity markets have rebounded,
IPOs remain a challenging exit option. PE-backed IPOs (including reverse mergers) fell 7 percent,
to $154 billion, in value and 20 percent in count. Anecdotally, the share of equity floated in
an IPO also continues to decline, which makes realizing liquidity and distributions through this
exit process tougher.

IPOs are especially critical for larger sponsors. IPOs comprised just 5 percent of the total
PE-backed exit count in 2024, but nearly 22 percent of PE-backed exits greater than $500 million.
As fund sizes have grown, many GPs are buying bigger companies that face more constrained
exit options. The bigger the company, the fewer sponsors or corporates that can purchase it,
especially if the valuation rises prior to exit. If IPOs continue to decline as a share of exits,
sponsors may need to shift their focus more to finding long-term corporate acquirers for their
assets (especially the larger ones).

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 7
Exhibit <7> of <21>

Sponsor-to-sponsor transactions as a share of total private-equity-backed

exit count reached a ten-year high in 2024.
Private-equity-backed exit count, by type, %1

6 5 5 5 5 Investor buyout by management

8 6 8 8 11
10 IPO and reverse merger
Sponsor-to-sponsor transaction
35 Sale to corporate
35 41 41 39 42 45
37 37 39
44

51 55 55 51 52 53 52 45 52 59 50

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: Figures may not sum to 100%, because of rounding.

1
Exits of private equity investments, including both those made by private equity investors and those made by additional investor types into mature companies
and excluding venture capital.
Source: PitchBook

McKinsey & Company

Braced for shifting weather 17

 Fundraisers: Enduring pressure, but the outlook is bright
For the typical PE GP, fundraising did not get any easier in 2024. Fundraising declined for the
third consecutive year, decreasing by 24 percent year over year to $589 billion.

Fundraising declined in North America, Europe, and Asia, although the decline was comparatively
smaller in Europe (falling by 11 percent) (Exhibit 8). Fundraising for buyout, growth equity,
and venture capital declined between 23 to 25 percent each, in contrast to 2023, when buyout
outperformed—although the 42 percent fundraising growth during the year could have been
distorted by a few megafund closes (Exhibit 9).

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 8 of <21>
Exhibit <8>

Private equity fundraising declined for the third consecutive year in 2024.
Private equity fundraising, by region, $ billion1
2019–24 2023–24 952
CAGR, % growth, % 25
882
Total –5.5 –24.3
136 47
Rest of world 9.8 0.4 782 778
12 108 19
Europe 6.0 –10.7 701
694 119
19 19
Asia –23.9 –32.0 648 263 178
14
106 138 204 589
North America –3.2 –28.8 86 19
543
14 239 90
107 159
248 183
398
368 280
15 61
14 64
299 70 208
10
76 529 523
209 210 160 491
113
20 14 412
45 58 321 361 350
41
55 267
73 214
155 171 160
76 95

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: Figures may not sum to totals, because of rounding.

1
Includes buyout, growth, venture capital, and other private equity. Excludes secondaries, funds of funds, and co-investment vehicles.
Source: Preqin; McKinsey analysis

McKinsey & Company

18 Braced for shifting weather

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 9 of <21>
Exhibit <9>

Buyout, venture, and growth fundraising fell 24 percent in 2024 after

a 12 percent drop in 2023.
Global private equity fundraising, by subasset class, $ billion1
2019–24 2023–24 952
CAGR, % growth, % 32
882
Total –5.5 –24.3
33
782 193
Other private –7.9 –17.9 778
equity2 20 182 16
694 701
Growth –7.8 –23.8 146 12 127
648
9 129 108
Venture –11.0 –23.2 589
543 126 133 13
Buyout –2.8 –24.9 332
15 183 97
106 314
116 230
398 102
203
368 32
13 206
299 65 150
85
20
39 501
209 210 66 121
43 433
12 15 394 376
52 38 351 352
310
51 49 261 254
197 204 180
94 108

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: Figures may not sum to totals, because of rounding.

1
Excludes secondaries, funds of funds, and co-investment vehicles.
2
Includes turnaround equity, private investment in private equity, balanced funds, hybrid funds, and funds with unspecified strategy.
Source: Preqin

McKinsey & Company

GPs are also taking longer to wrap up fundraising: Funds that closed in 2024 were open for
a record-high 21.9 months, compared with 19.6 months in 2023 and 14.1 months in 2018.
The total number of PE funds closed also fell to the lowest level in a decade. Meanwhile, roughly
420 buyout funds closed in 2024, which is lower than the ten-year average of around 460.

The following two trends stand out in our assessment of how PE fundraising fared in 2024.

Braced for shifting weather 19

 Midmarket fundraising appears more resilient
In an overall down year, midmarket funds (ranging from $1 billion to $5 billion in size) were
the only category that bucked the trend (fundraising was approximately flat year over year). This
was the first time in three years that the largest PE fundraisers did not record fundraising
growth, although this could be a function of fewer mega fund closures of more than $10 billion
(Exhibit 10).

Midmarket funds are also increasingly gaining share from smaller players (Exhibit 11). Funds
smaller than $1 billion in size were in market for five months longer than in prior years, while first-
time funds only managed to raise $34 billion in 2024, the lowest total since 2013.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 10
Exhibit <10> of <21>

The top 25 private equity fundraisers captured a smaller share of

fundraising in 2024 than that category did in 2023.
Private equity fundraising for annual top fundraisers, %1

12 10 11
16 15 16 16 15 15 15 16 17 15 Top 5
21 22 22 20
26 25 24 7 24
9 7
8 6 7 9 7 9 8 Top 6–10
8 12 9
7 14 12
11 12 11 15 6 12
12 15 12 12 14 Top 11–25
13 13 14 14 16
13 14
12 17
16 16 21
17 17 24 21
15 19 24 23
24 24 Top 26–100
31 29 19 22
28 31 29
24
23 17
26
24 23 18 17
22 15
24 18 15 15 14 16 Top 101–250
18 14
21 21 19 18
16
18 16 15 14 32
14 27 27 25 28 25 Long-tail
23 23 23
16 17 managers
11 12 12 12 11 14
8 9 9
5
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 10-year
average
2024

Note: Figures may not sum to 100%, because of rounding.

1
Includes buyout, growth, venture capital, and other private equity. Excludes secondaries, funds of funds, and co-investment vehicles.
Source: Preqin

McKinsey & Company

20 Braced for shifting weather

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 11
Exhibit <11> of <21>

Midmarket funds between $1 billion and $5 billion bucked the overall trend
of decline in private equity fundraising.
Global private equity fundraising1
Fundraising, by fund size and close year, $ billion 2019–24 2023–24
CAGR, % growth, %
1,000
<$250 million –14.9 –35.9

$250 million– –7.0 –6.7

800 499 million

$500 million– –4.5 –32.5

589 999 million
600
56
58 $1 billion–5 billion –0.5 0.5
68
400 $5 billion–10 billion –8.3 –35.8

229 >$10 billion –6.0 –42.8

200
58

120
0
2007 2009 2011 2013 2015 2017 2019 2021 2023
2024

Global fund count, number of funds

5,000

4,000

3,000

2,000

1,000

0
2007 2009 2011 2013 2015 2017 2019 2021 2023
2024
1
Includes buyout, growth, venture capital, and other private equity. Excludes secondaries, funds of funds, and co-investment vehicles.
Source: Preqin; McKinsey analysis

McKinsey & Company

Braced for shifting weather 21

 Traditional fundraising is getting harder, even as LPs are increasing allocations
Based on proprietary benchmarking of LP target allocations from CEM Benchmarking,
we see that LPs have consistently increased their target allocation to PE even amid
uncertainty—rising from 6.3 percent at the beginning of 2020 to 8.3 percent at the start of
2024 (Exhibit 12).

Our survey of leading LPs indicates that, despite being overallocated by approximately 175 basis
points at the beginning of 2024, a greater proportion of LPs plan to increase their allocations
to PE (30 percent), compared with those that want to reduce them (16 percent) (Exhibit 13). This
signals investors’ fundamental conviction in the ability of the asset class to generate superior
returns over the long run, despite any near-term challenges

How do we explain why fundraising might be getting harder even as LPs are increasing
allocations? For one, although distributions are up, they remain lumpy—many LPs prefer to
wait for some distributions before recommitting or subscribing to a new fund. This is
especially true in the context of the significant exit backlog we see today. Second, more
vehicles are competing for LPs’ funds. Third, most GPs look for multiyear commitments,
which can complicate annual fundraising.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 12
Exhibit <12> of <21>

Limited partners have increased their target allocation to private equity

since 2019.
LP private equity target allocation, %1
+1.9
8.2 8.3
percentage
points 7.5
6.8
6.4 6.5 6.2 6.3
6.0 6.1

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
1
All private equity, including growth and venture capital. Data as of beginning of each year.
Source: CEM Benchmarking

McKinsey & Company

22 Braced for shifting weather

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 13
Exhibit <13> of <21>

Limited partners are increasing their private equity allocations, driven by its
higher relative performance compared with other asset classes.
LPs’ outlook on PE allocation over next 12 months, Top 3 reasons for expecting increased PE
% of respondents1 allocation over next 12 months3

Increase from
2025, % 2024, %
Increase 29 25 30
PE performing better than
other asset classes in 63 10
risk-adjusted returns

Stay the same 53 62 54

Expected increases in
62 9
rate of return

Decrease 18 16 Diversity of portfolio 54 7

12
2023 2024 2025
Difference in number of
“increase” over “decrease” 11 13 14
selections, pp2

Note: Figures may not sum to 100%, because of rounding.

1
Only includes buyout.
2
Percentage points.
3
Share of respondents selecting “increase” when asked about their outlook on PE allocation over next 12 months.
Source: McKinsey LP and GP Survey, January 2025 (n = 333)

McKinsey & Company

LPs: Distribution growth offsetting muted returns

For LPs, cash started to become king again in 2024. Distributions exceeded capital calls for the
first half of the year, putting 2024 on track to be the first full year since 2015 where PE LPs saw
net positive cash flows. This suggests that persistent demands from investors for liquidity were
proactively addressed by GPs (Exhibit 14).

However, PE returns across subasset classes continued to decline, with the industry-wide IRR
for the nine months ending September 30, 2024 decreasing to roughly 3.8 percent from
5.7 percent in the prior year, well below the historical average of roughly 14.5 percent since 2010
(Exhibit 15). Among subasset classes, buyouts were the strongest performer through the first
three quarters of 2024 (4.5 percent IRR), in line with historical trends, followed by growth equity
(4.2 percent IRR) and venture capital (1.9 percent IRR).

Braced for shifting weather 23

 Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 14
Exhibit <14> of <21>

Private equity distributions exceeded contributions in the first half of

2024 for the first time since 2015.
Global private equity capital called and distributions1 Ratio of distributions
to capital called
Value, $ billion2 Capital called Distribution ≤1.0 >1.0

1,200

600

–600

–1,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1
2024

0.8 1.0 1.1 1.5 1.3 1.3 1.0 0.9 0.8 0.8 0.8 1.0 0.8 0.8 1.2

Capital called in excess of distributions, % of distribution

100

50

0
–14%

–50
–26%

–100
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1
2024
1
Includes buyout, growth, venture capital, and other private equity.
2
By year of final close.
Source: Preqin; McKinsey analysis

McKinsey & Company

24 Braced for shifting weather

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 15
Exhibit <15> of <21>

Private equity returns declined to roughly 3.8 percent in 2024.

Private equity performance, by subasset class, 1-year pooled IRR for 2000–21 vintage funds, %1
60
All private equity

50 Venture capital

Growth
40
Buyout
30

20

10

–10

–20

–30
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
1
Assessed using IRR; calculated by grouping performance of 2000–21 funds during 2000–24. Some data not available for certain periods. IRR for 2024 is year to
date as of September 30, 2024.
Source: MSCI

McKinsey & Company

2024 marked the third time in the past four years that public markets outperformed overall
private equity, a stark contrast to the previous decade, during which the latter consistently
outperformed public equities. In fact, even after excluding the so-called Magnificent Seven,7 the
benchmark S&P 500 returned over 17 percent through the first and third quarters of 2024,
outperforming all private equity subasset classes. When analyzed over a longer period of ten or
25 years, however, the buyout subasset class has historically outperformed public equities,
which likely explains LPs’ continued support for the asset class (in addition to it providing LPs
with diversification opportunities) (Exhibit 16).

Moreover, buyout multiples have continued to remain lower than public multiples, partly
reflecting the so-called illiquidity penalty of investing in longer-life, more illiquid private markets
(Exhibit 17). In 2024, the delta between public and buyout multiples grew further, with buyout
purchases remaining cheaper than public stock purchases (as they have for more than 15 years).

7
Magnificent Seven refers to a select set of the seven highest-performing companies in the US stock market—in 2024, these
were Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla.

Braced for shifting weather 25

 Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 16of <21>
Exhibit <16>

Private equity investment has outperformed public equity investment

since the turn of the millennium.
Horizon investment returns, by asset class, %1
1 year 3 years 5 years 10 years 25 years
Q4 2023–Q3 2024 Q4 2021–Q3 2024 Q4 2019–Q3 2024 Q4 2014–Q3 2024 Q4 1999–Q3 2024

Private Buyout 8.5 6.3 15.6 14.1 13.4

Growth equity/
2.7 –5.2 14.3 14.5 10.7
venture capital

Public MSCI World 33.1 9.6 13.6 10.6 6.9

Index

S&P 500 36.3 11.9 16.0 13.4 8.2

1
Assessed using IRR; calculated by grouping performance of 2000–21 funds during 2000–24. Some data not available for certain periods.
Source: Bloomberg; MSCI

McKinsey & Company

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 17
Exhibit <17> of <21>

The gap between global buyout and public equity multiples widened in 2024.
Median multiples of global buyout entry and Global buyout (purchase MSCI World Index
public equity, turns of EV 1/EBITDA price/EBITDA) (EV 1/EBITDA)

15x 14.6

13.1
12.3 12.5
11.8 11.9 11.7 11.8 12.0 12.2 11.9
11.4 11.5 11.2 11.4
11.1 11.2
10.7 10.7
10.1 10.0
9.7 9.8
10x 9.2
8.5 8.6
8.3
7.6 7.4 7.7 7.4
6.5

5x

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 20242
–4.2 –3.9 –2.7 –2.0 –3.3 –2.8 –3.2 –3.7 –2.7 –1.9 –1.5 –1.4 –2.8 –0.2 –0.2 –1.2
Difference of global buyout multiple from public equity multiple

Note: Figures may not sum to totals, because of rounding.

1
Enterprise value.
2
As of Sept 30, 2024.
Source: Bloomberg; SPI by StepStone

McKinsey & Company

26 Braced for shifting weather

Our analysis of 2024 activity points toward a maturing industry structure and the rise of an
ecosystem that delivers solutions around it. There are two trends that we believe are particularly
pertinent to LPs.

LPs have become part of the liquidity solution

With liquidity remaining a pressing issue for LPs, and exits still backlogged, the secondary
market has increasingly become a critical source of liquidity for LPs. Secondaries’ transaction
value rose 45 percent to an all-time high of $162 billion last year, according to Jefferies’
market review.8 More than half of this total comprised LP-led deals (reflecting how LPs found
a way to monetize their investments). The pricing LPs could expect when trading their fund
stakes rose from 85 percent of NAV in 2023 to 89 percent in 2024. LPs have also embraced
GP-led secondaries, rising to an all-time high of $75 billion, 84 percent of which came from
continuation vehicle transactions.

Asset class conviction and asset manager conviction are now in sync
If the liquidity needs of LPs have propelled the secondaries market to greater heights, their
growing interest in directly investing in GPs is indicative of their fundamental belief in the long-
term value of GPs as well as the private equity industry. According to our LP survey, roughly
43 percent of LPs invest in GP stakes funds today. Of those, around 56 percent (led by sovereign
wealth funds) are considering buying direct GP stakes.

For PE operators, there has never

been a greater need to focus on
value creation to drive returns, given
increasing purchase prices and
lengthening holding periods.

8
Global secondary market review, Jefferies, January 2025.

Braced for shifting weather 27

 Operators: The value creation imperative endures
For PE operators, there has never been a greater need to focus on value creation to drive
returns, given increasing purchase prices (as a multiple of EBITDA) and lengthening holding
periods. While multiple expansion has driven private equity returns for a decade, steeper
entry multiples and the heightened cost of leverage mean this lever is unlikely to persist for
the next decade.

Analysis by StepStone Group indicates that, for deals done 2010–22, leverage and multiple
expansion comprised 61 percent of returns. The remaining 39 percent came from revenue
growth and EBITDA margin expansion (Exhibit 18). Over the past decade, however, the expansion
in leverage and multiples has forced managers to focus on operational improvements to
maintain their target returns. As a result, operators’ ability to increase top-line revenue and
improve margins is increasingly under scrutiny from GPs and LPs.

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 18of <21>
Exhibit <18>

Leverage and market multiple expansion drove 61 percent of investment

returns for buyout deals from 2010 to 2022.
Drivers of investment returns for realized buyout deals in 2010–22, multiple of invested capital1

1.0× 3.0×
0.7× –0.4×

–0.3x
0.2× 2.0×
0.8×

1.0×

Invested Revenue EBITDA Market GP EBITDA Debt Unlevered Leverage Levered

capital growth margin EBITDA multiple paydown plus return return
expansion multiple contraction dividends
expansion
1
Sample of 3,056 buyout deals entered on or after Jan 1, 2010, and exited on or before Dec 31, 2022.
Source: SPI by StepStone

McKinsey & Company

28 Braced for shifting weather

We see four trends shaping how operators are creating value within their portfolios.

Companies are not doing it alone

Investors are increasingly involving themselves, through portfolio operations teams, in value
creation. In our proprietary survey of private equity operating groups conducted in 2024,9
we found that the average operating group size across funds of all sizes has more than doubled
in the past three years alone. GPs are realizing that achieving returns will require dedicated
specialist help, regardless of their AUM size.

M&A remains a key enabler of returns

Even as some of the more traditional M&A roll-up plays for sponsors have slowed, add-on
M&A (for example, acquisitions undertaken by a PE-backed company) only appears to
be accelerating. Add-on acquisitions (especially when the synergy case is clear) are gaining
popularity: Roughly 40 percent of total PE deal value in 2024 was from add-ons rather
than platform deals—the second-highest ratio in a decade after 2023 (Exhibit 19).

Web <2025>
<Global Private Markets Review 2025—Private Equity chapter>
Exhibit 19of <21>
Exhibit <19>

Nonplatform deals for private equity buyout accounted for 40 percent of

buyout deal value in 2024.
Nonplatform and platform deals for private equity, % of total deal value1

27 33 29 29 32 30 32 Nonplatform
35 34 37 38 39 38 40
42 (add on)

73 67 71 71 68 70 68
65 66 63 62 61 62 60 Platform
58

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Nonplatform
49 53 52 54 55 56 57 57 59 63 65 68 72 70 69 deals, % of
deal count
1
Includes private equity buyout and leveraged buyout (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition,
management buyout, management buy-in, privatization, recapitalization, public-to-private transaction, and secondary buyout).
Source: PitchBook

McKinsey & Company

9
January 2025, n = 333.

Braced for shifting weather 29

 Organic cash generation is key to managing leverage
Given higher financing costs, companies have less headroom for mistakes than before. As
McKinsey’s research notes, rising interest rates and profitability challenges can be a toxic mix for
companies, leading to triggered covenants and (in some cases) loss of sponsor control. Even
as trading conditions improve, the discipline of improved cash management in the near term (and
accelerating cash generation) are vital to achieving long-term returns.

Portfolio companies are taking the lead on exits

We are seeing portfolio companies investing more in exit preparation, given the need to achieve
attractive returns in an environment with increased buyside scrutiny on valuations and elevated
interest rates. Most commonly, this preparation includes investing in growth and operational
improvement initiatives ahead of the sale process to demonstrate progress against select value
creation theses for potential next owners. Additionally, market studies are becoming increasingly
common to boost buyers’ conviction on growth and value creation potential, and to tackle
nuanced questions (such as AI-related risks and energy-transition-related opportunities
and risks).

Low visibility conditions in fog can make navigation difficult. Planes can’t take off. Ships linger
in the port longer. Cars drive slower. As the fog dissipates, what lies ahead gets clearer
(and brighter) and things move freely again. In the private equity industry, throughout the rough
weather conditions of recent years, dealmakers, fundraisers, LPs, and operators strived to
regain and maintain momentum. As the weather clears up, it reveals an industry more resilient,
innovative, and stronger than before.

30 Braced for shifting weather

Real estate reaches
for daylight
Real estate inched closer to a full recovery in 2024.

Braced for shifting weather 31

 The real estate industry charted an uneven path to recovery in 2024. Some strategies and
sectors found stability, while others continued to face substantial headwinds.

On the plus side, global real estate deal value grew in 2024 for the first time in three years, rising
11 percent to $707 billion, from $634 billion in 2023. The partial rebound was driven by rate cuts
that created a less unfavorable financing environment, compression in capitalization (cap) rates,
and reduced supply in sectors such as multifamily and industrial. Additionally, asset values
may now be stabilizing as investors improve their risk assessment of the asset class.

However, fundraising woes continued throughout the year. Global closed-end fundraising declined
by 28 percent to $104 billion, the lowest annual total since 2012. The decline in fundraising
varied across Asia–Pacific, Europe, and the United States. Debt fundraising declined the most,
by 44 percent year over year—though much of the capital raised for debt strategy is being
channeled through broader special-situation and opportunistic vehicles instead of dedicated
debt funds. According to our analysis, opportunistic fundraising declined by 31.5 percent
to $37 billion, though the data may be skewed by fund timing—fundraising in 2023 included the
largest fund ever raised, an opportunistic vehicle four times the size of 2024’s largest fund.
And while net flows from open-end core funds continued to be negative, they grew marginally
to –$12.0 billion in 2024, up from –$12.6 billion in 2023, as investors rotated into higher-
return strategies.

LPs maneuvered through mixed real estate performance. Returns for closed-end real estate
funds remained negative, with a pooled IRR of –1.1 percent through the third quarter of 2024.
Open-end funds were also under pressure: NFI-OE1 funds recorded a gross return of –1.6 percent
in 2024, registering their second annual decline since the 2008 global financial crisis.

In other areas, performance improved. The NCREIF Property Index, which measures property-
level returns, saw positive property-level unlevered total returns in 2024, driven by a rebound
in appreciation and stronger income returns. Alternative sectors also posted robust returns, with
manufactured housing and senior housing generating total returns of 11.7 percent and
5.6 percent, respectively, in 2024. Meanwhile, data centers, which have become real estate’s
most sought-after sector, delivered 11.2 percent returns. GPs that have the operational
expertise/partnerships to manage access to power, tenant relationships with hyperscalers,
and zoning constraints were able to raise capital for data centers at scale.

As GPs look for ways to increase net operating income in the current environment, those investors
with operational capabilities and expertise are taking market share from capital allocators. GPs
with operational capabilities accounted for 37 percent of real estate assets under management
in 2023, up about 11 percentage points over the past decade. For their part, some leading
capital allocators are starting to harness the power of analytics and actively managing their
operator partners to enhance their service delivery and ensure consistent alpha generation.

Here’s a deep dive into these trends and implications for dealmakers, fundraisers, and LPs.

1
The National Council of Real Estate Investment Fiduciaries (NCREIF) Fund Index–Open End Equity.

32 Braced for shifting weather

Dealmakers: Capitalizing on renewed growth
In 2024, global real estate deal value grew for the first time since 2021, reversing a multiyear
decline 2 (Exhibit 1). The strongest rebound occurred in sectors underpinned by durable secular
fundamentals such as multifamily and industrial, where deal value increased by 20 percent
and 16 percent, respectively.

Real estate dealmakers in Asia–Pacific recorded the highest year-over-year growth in

transaction value: 14 percent. Meanwhile, deal value grew by 11 percent and 10 percent in the
Americas and in the EMEA (Europe, the Middle East, and Africa) region, respectively.
Web <2025>
<Global Private Markets Review 2025—Real estate chapter>
Exhibit <1> of <4>

Exhibit 1

Global real estate deal value grew for the first time since 2021.
Global real estate deal value, $ billion 2023–24
growth, %

1,399 EMEA¹ 10.4

Asia–Pacific 13.7

Americas 10.9
410 1,176

1,072
1,030 1,046
981 312
936
886
843 348 362 833 237
386
351
731 345 196
300 707
313 294 634 +11%
587 254 191 197 188
128 538 153 170
152 174
444 196
412 204 155 178 171
144 151
751
211 167 119 667
241 113
515 477 507 513
434 417
81 120 103 376 360
333 313 347
272
221
153 63 143
58
2007 2009 2011 2013 2015 2017 2019 2021 2023 2024

Note: Figures may not sum to totals, because of rounding.

¹Europe, the Middle East, and Africa.
Source: MSCI Real Capital Analytics

McKinsey & Company

2
Real Capital Analytics, MSCI, accessed April 2025.

Braced for shifting weather 33

 Within regions, deal value varied significantly by sector. In Asia–Pacific, for instance, industrial real
estate’s deal value grew by 60 percent, fueled by supply chain reconfiguration and nearshoring
strategies amid geopolitical shifts. In the EMEA hotel sector, deal value increased by 58 percent,
driven by a perceived undersupply caused by rising travel demand following the COVID-19
pandemic. And in the Americas, multifamily deal value grew by 27 percent, supported by sustained
long-term demand for rental housing amid persistent housing affordability challenges.

The partial recovery in global deal value was driven by a few factors. Interest rate cuts created a
less unfavorable financing environment, prompting an increase in the issuance of commercial
mortgage-backed securities and reducing borrowing costs. As a result, some deals that weren’t
projected to meet return thresholds at this time last year suddenly became viable. Supply also fell
throughout 2024: Construction starts in the United States’ industrial sector, for instance,
declined by 32 percent year over year, while new multifamily construction dropped by 41 percent.
Cap rates also compressed across multiple sectors, signaling a more competitive pricing
environment. For example, cap rates declined by approximately 40 basis points in the multifamily
sector (to 5.2 percent) and by 25 basis points in the retail sector (to 7.0 percent).3 This
compression suggests that asset values may now be stabilizing, as the market starts to
factor in lower perceived risk of investing in commercial real estate.

Nevertheless, a few challenges are impeding real estate’s full recovery. First, the net asset value
(NAV) of open-end funds in the United States continues to decline. It decreased by 14 percent in
2024, more than double last year’s 6 percent decline, but is still hovering around 2021 levels.4 Our
research shows that NAV began to stabilize in the fourth quarter of 2024, though it remains to
be seen whether this marks a true inflection point or a temporary bump amid ongoing valuation
challenges. When analyzing cap rate and NAV data, it’s important to remember that cap rate
compression reflects real-time market demand based on transaction data. Changes in NAV can
lag, as they rely on periodic appraisals that aren’t in real time.

The partial recovery in global deal value

was driven by a few factors, including
an increase in the issuance of commercial
mortgage-backed securities and
reduction in borrowing costs.

3
Based on Green Street data.
4
Based on NCREIF Property Index data.

34 Braced for shifting weather

Another challenge has been a moderation in the rate of rent growth across many traditional
sectors—even across decade-long investor favorites—after reaching record highs. For example,
the growth in rent for multifamily properties has been less strong since the first quarter of 2022,
from 9.7 percent to just 1.1 percent by the close of the fourth quarter of 2024. Industrial-rent
growth has also slowed considerably over the past 12 months, settling at 2.1 percent, which is
less than half of the average growth rate recorded during the five years leading up to the
COVID-19 pandemic. Only a few sectors continue to see strong gains. Data centers in the United
States are one example where rents grew by 12.7 percent in 2024, fueled by strong tenant
demand and constrained supply.5

Our analysis points to three global trends in dealmaking.

Surging demand for data centers

In 2024, data centers emerged as one of the strongest-performing commercial real estate
sectors. Investor interest in the sector was driven by sustained tenant demand, constrained supply
of power-ready sites, long-term leases with hyperscaler tenants, and attractive development
economics (see sidebar, “The race to build data centers”). Data center occupancy levels have
reached record highs of more than 95 percent in major markets, by most estimates. By contrast,
most other sectors are hovering around their historical averages, except for office spaces,
where occupancy declined to 86 percent (below the ten-year average of 90 percent).6 Moreover,
the stabilized yield-on-cost for data center development exceeds 10 percent, while value
creation margins are about 50 percent.7

In terms of the tenant mix, hyperscalers drove more than 4,000 megawatts of new leasing in
2024—the highest annual volume in history—by securing large preleases with data center
operators across major global markets.8 These forward commitments accounted for most of
the data center demand and triggered an increase in new development, as most data center
supply is built to suit rather than speculative. With an estimated 75 percent of the data center
construction pipeline already preleased, hyperscalers remain a key force behind capacity
expansion to meet accelerating digital-infrastructure needs.9

Value creation through operational capabilities

Investors with operational capabilities and expertise, and capital allocators, have historically
represented two distinct GP approaches to investing in commercial real estate, but the former
has gained more prominence in recent times.

Investors with operational capabilities create value by directing property-level operations. They
combine hands-on asset management, property operations, and development capabilities to
improve value at the property level. By contrast, capital allocators focus on portfolio management
and operating-partner selection. They harness investment acumen and capital structuring
initiatives to create value in the asset without guiding detailed value creation plans at the property
level. Both models consist of generalist GPs that invest across sectors, as well as specialist
managers that concentrate on select sectors.

5
Reflects Green Street’s M-RevPAF (market revenue per available foot) metric, which combines changes in occupancy and asking
rents into a single measure. The metric is reflective of a portfolio marked-to-market annually (excluding power costs). The percent
changes can be used interchangeably with the data center sector’s conventional rent calculated per kilowatt of power capacity.
6
Based on CoStar data.
7
Based on Green Street data.
8
Ibid.
9
Ibid.

Braced for shifting weather 35

 Sidebar

The race to build data centers

Digital and cloud revolutions have exponentially challenges such as power shortages, grid
increased the demand for data centers. According limitations, and transmission constraints that
to McKinsey’s proprietary data center demand can restrict new development. They will need
model projections, total data-center-critical IT to manage these factors alongside traditional
demand was 60 gigawatts in 2024. By the end of issues such as zoning restrictions and land
the decade, the annual demand could nearly availability. Equally critical is the ability to attract
triple and reach around 171 to 219 gigawatts.1 and retain a small number of hyperscaler tenants
that now wield significant buying power
McKinsey’s analysis suggests that data center in the market. GPs can achieve competitive
demand that’s unconstrained by supply could be differentiation by building deep, trusted
well north of 250 gigawatts—a challenging feat relationships with these tenants, as they are
given power constraints globally and in the United increasingly dictating lease terms and preleasing
States, as well as other supply chain issues.2 decisions in major markets. GPs that have
done these things and built operationally intensive
To capitalize on this demand for data centers, GPs platforms have succeeded in raising significant
will need to secure sites with reliable and cost- capital and doubling down on their data
effective access to power while addressing center investments.

1
“AI power: Expanding data center capacity to meet growing demand,” McKinsey, October 29, 2024.
2
“What the real estate industry needs to know about data centers,” McKinsey, October 15, 2024.

At a time when GPs can no longer rely on just cap rate compression to create returns, they’re
increasingly prioritizing strategies to grow net operating income. As a result, investors with
operational capabilities are gaining market share. Consider these data points: Although generalist
allocators still make up the majority of real estate’s assets under management (54 percent),
the share of investors with operational capabilities has grown by around 11 percentage points over
the past ten years.10

Particularly in the current environment, investors with operational capabilities can create
value through improved end-user experiences, access to and use of data, and efficient delivery
models. This is all underpinned by investors having greater control over operations, which
enables more robust risk management, and ultimately leads to stronger property performance,
including higher retention of clients, ancillary-services revenue, better ROI on customer/client
acquisition, and lower-cost property operations. Digital and data are core to driving these
tangible outcomes in the portfolio. Such operational expertise can be built in-house or accessed
through strategic partnerships.

10
McKinsey Operating Model Matrix.

36 Braced for shifting weather

The allocator can now also join the party. GPs have traditionally needed labor-intensive
capabilities (such as property management) to create value through operations. That’s no longer
the case. Sophisticated capital allocators can now use data and technology to embed their
expertise more efficiently in the day-to-day management of a property—for example, using data
and tooling to track maintenance needs across properties; deploying intelligent ticketing and
routing systems to improve response times; building tools that infuse “hospitality” into the tenant
journey at every step; and using AI to drive capital expenditure, acquisition, and disposition
decisions. As operational expertise becomes more central to value creation, tech enablement
will become an even greater source of competitive advantage for both types of players, driving
strategic distance.

The looming wall of maturities

Nearly $2.1 trillion of $4.8 trillion in commercial real estate loans in the United States are set
to mature within the next three years, particularly in the office and multifamily sectors.11
Many owners who delayed refinancing their loans now face valuation gaps, tighter lending
conditions, as well as the risk of write-downs, distressed sales, or surrendering their
properties. This environment also presents opportunities for debt fund managers to meet
owners’ capital needs, acquire distressed assets at discounts, and offer creative financing
solutions. For strategics, this disruption could also be a chance to reposition their portfolios
and capitalize on market dislocations.

Investors with operational capabilities

can create value through improved
end-user experiences, access to and
use of data, and efficient delivery
models, all underpinned by strong
risk management.

11
2024 commercial/multifamily loan maturity volumes, Mortgage Bankers Association.

Braced for shifting weather 37

 Fundraisers: Navigating uncertain terrain
Global closed-end fundraising declined by 28 percent to $104 billion, the lowest annual total
since 2012 (Exhibit 2). Closed-end fundraising in the United States declined by 22 percent year
over year, while fundraising in Europe and Asia both declined approximately 50 percent.

Opportunistic fundraising declined by 31.5 percent to $37 billion, although the decrease was
partially driven by the timing of funds coming to market, which is likely to have skewed the overall
total and disproportionately distorted this segment. For instance, an opportunistic vehicle that
closed in 2023 and became the largest-ever fund to have been raised was more than four times
the size of 2024’s largest vehicle.

Web <2025>
<Global Private Markets Review 2025—Real estate chapter>
Exhibit <2> of <4>

Exhibit 2

Closed-end real estate fundraising fell across strategies to $104 billion.

Global closed-end real estate fundraising, by strategy, $ billion1
251 2019–24 2023–24
CAGR, % growth, %

Total –12.2 –28.2

71 211 Value added –4.8 –15.9

200
Opportunistic2 –15.2 –31.5

Debt –12.1 –43.9

49 72
164 166 Core and –17.9 –26.8
161
core plus
145 145
135 42
57 81
55
39 46 –28%
115
109 41
85 104
74
89 26 34 49

53 44 38
22 42
68 54
70 51
17 50 40
40 28
28 33 37
44
26 33
23 26
26 17 57
20 15
13 10 33 38 34 33
19 20 22 19
11 13 13 15 14
2011 2013 2015 2017 2019 2021 2023
2024
Note: Figures may not sum, because of rounding.
1
Excludes secondaries, funds of funds, and coinvestment vehicles.
2
Includes distressed real estate.
Source: Preqin

McKinsey & Company

38 Braced for shifting weather

In fact, our conversations with leaders suggest that even though fundraising remains fragile,
investors are increasingly willing to underwrite complexity and dislocation, with the goal of
capturing outsize returns in a recovering market.

Real estate debt fundraising declined by 44 percent, even amid growing investor interest in the
strategy. Meanwhile, closed-end core and core plus continued their descent to decade lows,
declining by an aggregate of 27 percent year over year.

Two trends stand out in our assessment of how real estate fundraising fared in 2024: rising
interest in real estate debt and continued pressures faced by open-end funds.

Rising interest in real estate debt

The decline in fundraising for dedicated real estate debt vehicles in 2024 masks the broader
rise of real assets credit strategies—many of which are being deployed at scale through special-
situation, opportunistic, or multiasset platforms.

In our 2025 McKinsey LP Survey, 63 percent of the respondents expressed an interest in

investing in real estate debt in 2025, up from 56 percent in the prior year. The appeal of real
estate debt is multifold. Credit strategies have historically offered more stable returns and
lower risk compared with equity investments, which may be appealing to investors in a volatile
market. In addition, the recent surge in loan maturities and the tightening of traditional bank
lending have amplified demand for alternative financing structures such as mezzanine debt and
preferred equity. This positions real estate credit as a vital solution for refinancing gaps and
distressed-asset repositioning.

Although several large real estate debt funds have closed in recent months, overall fund
formation in the segment hasn’t yet occurred. This is potentially because many credit-oriented
deals are being executed through broader special-situation or opportunistic vehicles rather than
within real-estate-only strategies.

There’s also structural complexity in how LPs approach the asset class. Responsibility for real
estate credit allocations varies across LP organizations, sometimes sitting within a credit team
and other times within the real estate team, which can create ambiguity for GPs seeking to
engage appropriate capital allocators. While investors’ interest in the space continues to grow, a
lack of standardized ownership of real estate credit within LP organizations may slow capital
formation. At the same time, these challenges provide an opportunity for platforms (for example,
a dedicated investment and operating group within an organization, often with in-house
management and specialized expertise in a specific sector, strategy, or geography) to offer
tailored real estate credit solutions to these investors.

In addition to organizational factors, several market dynamics may help explain the slower pace
of dedicated fund formation. Some institutional investors (for example, life insurers and pension
funds) may be allocating to real estate debt through direct investments rather than pooled
vehicles. At the same time, spreads between mortgage rates and corporate credit yields have
compressed, potentially reducing the relative attractiveness of the substrategy for some
investors. With overall transaction activity still modest, despite growth from last year, the volume
of equity deals requiring debt financing remains limited, dampening near-term demand for
large-scale deployment.

Braced for shifting weather 39

 Open-end funds continue to face pressures
In the United States, open-end core funds, as tracked by the NFI-OE Index, represent an
important segment of institutional real estate exposure. These vehicles typically offer more
stable income, quarterly liquidity, and lower leverage to investors, compared with closed-end
funds and other vehicles. In 2024, net investor cash flows (calculated as distributions minus
contributions and redemptions) improved only marginally and remained significantly negative,
totaling –$12.0 billion compared with the all-time low of –$12.6 billion in 2023 (Exhibit 3).

While redemptions and distributions in the NFI-OE rose modestly, the slightly larger increase in
contributions drove the marginal improvement in net flows. This improvement is a sign that,
although investor sentiment remains cautious, confidence in real estate investing is beginning to
improve relative to the prior year. Some of the capital flowing out of open-end funds may also
be making its way to other commercial real estate strategies. Investors continue to rotate out of
core and core-plus vehicles into opportunistic and value-add vehicles, as they increasingly
opt for capital appreciation over income generation in a market where alternative sources of yield
have grown more attractive.

Web <2025>
<Global Private Markets Review 2025—Real estate chapter>
Exhibit <3> of <4>

Exhibit 3

Net outflows for US open-end funds remained near record lows in 2024,
totaling –$12 billion.
Open-end real estate investor cash flows,1 $ billion

Contributions Distributions and redemptions Net flows2

40 15

30
10

20
5
10
0
0
–5
–10

–20 –10

–12.0
–30 –15

2000 2006 2012 2018 2024 2000 2006 2012 2018 2024
1
NCREIF Fund Index – Open-End Equity (NFI-OE) includes real estate open-end vehicles across all strategies.
2
Contributions, less distributions and redemptions.
Source: NCREIF

McKinsey & Company

40 Braced for shifting weather

Although investor sentiment
remains cautious, confidence in
real estate investing is beginning
to improve.

Fundraising strategies continue to expand

Beyond operations, GPs are expanding their real estate fundraising strategies out past traditional
channels to tap high-net-worth investors and insurance capital—segments that have become
increasingly central to capital formation. In this way, they have been able to diversify their LP base,
unlock new sources of scale, and extend their fundraising runway. Similarly, they’re expanding
their product offerings to include more real estate credit and special-situation strategies, often
structured as soft-launch or multiasset vehicles. GPs are taking these actions to try to meet
investors’ demand for flexibility, capitalize on bank retrenchment, and respond to growing
investor appetite for dislocation-driven returns.

LPs: Repositioning in a shifting market

2024 was a mixed year for real estate returns, prompting many LPs to reassess their capital
allocation strategy.

Overall, real estate returns remained negative with a pooled IRR of –1.1 percent for the nine
months ending September 30, 2024. Although 2024’s returns improved by five points from last
year’s –6.4 percent, they remained well below the ten-year average of 6.9 percent, as measured
by Burgiss, which calculates fund-level returns in closed-end vehicles.12

In the United States, the NCREIF Property Index posted positive total returns of 0.6 percent,
compared with –7.6 percent in 2023. The improvement in performance was driven by
a rebound in appreciation (–4.0 percent, compared with –11.5 percent in the prior year) and
higher income returns (4.8 percent, compared with 4.3 percent in the prior year).

The performance of open-end funds in the United States continued to suffer in 2024. NCREIF’s
NFI-OE funds posted a gross return of –1.6 percent, only the second negative annual return for
the sector since the global financial crisis.

12
Based on Burgiss data.

Braced for shifting weather 41

 Alternative sectors are getting more mainstream
By contrast, alternative sectors like data centers, manufactured housing, and senior housing
continued to outperform traditional sectors for the third consecutive year, extending a decade-
long trend (with the exception of 2021) (Exhibit 4). In 2024, data centers posted an 11.2 percent
return, whereas manufactured housing and senior housing achieved 11.7 percent and 5.6 percent
returns, respectively.

Traditional sectors have delivered strong and stable performance over time—but today, the most
compelling opportunities are emerging in alternative sectors where few institutional managers
currently operate. Aside from data centers, cold storage, medical-office buildings, and senior
housing are among the sectors gaining traction with industry players. Despite historical
outperformance, these and other alternative sectors remain underrepresented in most
institutional real estate portfolios. Managers that have succeeded in such alternative
sectors have done so by building dedicated platforms, recognizing that the operational
complexity of these assets demands specialized capabilities.

Web <2025>
<Global Private Markets Review 2025—Real estate chapter>
Exhibit <4> of <4>

Exhibit 4

Alternative sectors have outperformed traditional sectors in total returns in

nine of the past ten years.
The NCREIF Property Index total average annual returns, 10-year total
by calendar year, % average
return, %
16.8
Alternative sectors1 7.8
13.7
12.6 12.5 Traditional sectors2 5.7
11.4
9.9
9.2
8.2 7.8 7.7
7.4 7.2
6.8
6.0
5.0
3.3
0.6
–0.3
2015 2016 2017 2018 2019 2020 2021 2022 –1.9 2024

Total returns driven by mix of traditional and alternative –5.3

Industrial (43%), self-storage (32%), office life science (24%), 2023
and apartment (20%)

Total returns driven by alternative

Manufactured housing (12%) and data center (11%)
1
Alternative includes office life science, medical, data center, other, self-storage, senior housing, parking, manufactured housing, single-family residential,
student housing, assisted living, independent living.
2
Traditional includes hotel, industrial (manufacturing, specialized, and warehouse), office (central business district, secondary, suburban, and urban), residential
(apartment), and retail (mall, street, and strip).
Source: NCREIF Property Index (NPI) total returns, by calendar year

McKinsey & Company

42 Braced for shifting weather

LPs continue to raise the bar
In our work with global LPs, we’ve observed a sharp pivot toward more focused and strategic
deployment of capital. Rather than pursuing broad diversification, many LPs are putting capital
behind bold, conviction-driven thematic ideas such as decarbonization of the built environment,
digital infrastructure, and demographic shifts—areas that represent targeted and impact-oriented
opportunities. Additionally, LPs are increasingly favoring managers that can bridge the full
breadth of their platforms, integrating capabilities across real estate, infrastructure, and credit,
so allowing them to respond to complex, cross-sector investment theses with agility.
LPs also continue to consolidate their relationships and work with fewer, more strategic
partners. Skin in the game continues to matter deeply: LPs increasingly expect GPs
to co-invest meaningful capital from their balance sheet to assess manager conviction and
long-term commitment.

Headwinds persisted through 2024 for commercial real estate and impeded a full recovery.
However, these pressures also highlighted areas of resilience across the asset class. Deal
activity picked up modestly, cap rates began to stabilize in some sectors, and alternative sectors
continued to deliver stronger relative performance. Especially amid evolving macroeconomic
conditions, real estate’s bright spots point to early signs of recalibration—although the path to
recovery is likely to remain uneven across sectors and geographies.

Braced for shifting weather 43

 Private debt
remains steady in
the crosswinds
Private debt, once again, proved to be a resilient asset class
in 2024.

44 Braced for shifting weather

Private new-issue financing for leveraged buyouts (LBOs) increased in the United States
and Europe in 2024, fueled by robust transaction activity in private equity buyouts amid a more
benign borrowing environment compared with prior years. And although global private debt
fundraising decreased by 22 percent to $166 billion, the rate of decline was lower compared with
other private market asset classes—and was largely driven by the mezzanine substrategy.

Private debt is going through a period of evolution. For many years, growth in the asset class,
particularly in the direct lending strategy, was driven by banks’ retreat from leveraged lending. In
2024, banks’ and syndicated lenders’ share of total financing increased—with more willingness
from banks to take on risk. Average spreads in direct lending, the largest private debt substrategy,
compressed by approximately 150 basis points to settle at about 550 basis points over base
rates. While direct lending continued to lead new-issue LBO financing in terms of deal value and
count, its share of global private debt deal value declined year over year.

Amid these shifts, investor interest in private debt remains strong. In uncertain market conditions,
the security derived from debt’s privileged position in the capital structure has appealed to
institutional investors, as well as retail and insurance capital pools that continued to flow into
private debt strategies in 2024. Further, investors expect the private credit ecosystem to
continue expanding as more asset classes transition to nonbank lenders.

New opportunities are also emerging for managers. Over $620 billion in high-yield bonds and
leveraged loans, for example, are set to approach maturity in 2026 to 2027, which could create
refinancing opportunities and spur greater demand for private credit solutions.1 To position
themselves well for the future, managers should remain disciplined in their underwriting, build
capabilities in new asset classes, tap alternative capital sources, and translate geopolitical
risks into credit opportunities.

In this report, we focus on direct lending and adjacent strategies (for example, special situations
and mezzanine, distressed, and venture debt), excluding segments such as public or quasi-
public credit, structured credit products, balance sheet lending by regulated institutions, and
fund-level or sponsor financing.

Dealmakers: Growth in private debt issuance

Comprehensive data on private debt deal volumes across strategies and geographies is often
limited by the opaque nature of activity in this space. In sponsored direct lending (private
loans made to PE-backed companies), available data suggests that new private debt issuance
for LBOs increased by 30 percent year over year in the United States and Europe combined.
The uptick was mostly a result of an increase in LBO transactions (global buyout deal value
was up 16 percent in 2024) due to lower borrowing costs and improvement in the global
economic outlook.

1
“2025 credit outlook: Defying gravity,” Apollo Global Management, January 14, 2025.

Braced for shifting weather 45

 Our analysis points to four global trends in dealmaking: declining financing spreads, a shift in
LBO financing toward syndicated lenders, private debt GPs increasingly tapping insurers
and other forms of permanent capital, and the expansion of the private debt’s footprint amid
regulatory changes.

Financing spreads decline

Overall spreads declined across financing channels in 2024. In direct lending, spreads reached
their lowest level since 2021, as banks and syndicated lenders returned to the market amid more
favorable macroeconomic conditions.

Direct lending spreads compressed by 120 basis points, to 550 basis points. Meanwhile, spreads
in broadly syndicated loans (BSLs) fell 100 basis points, to 370 basis points (Exhibit 1).

The difference between syndicated and direct lending spreads narrowed to around 180 basis
points, down 19 percent from its 2022 peak of 221 basis points. The narrowing gap between
the two strategies suggests that a more competitive financing market may be reducing private
debt’s premium.
Web <2025>
<Global Private Markets Review 2025—Private Debt chapter>
Exhibit <1> of <6>

Exhibit 1

Spreads in direct and syndicated lending compressed amid a pickup in

broadly syndicated loan activity.
Spread of LBO financing in direct lending vs BSL market¹ Direct lending spread Difference in
spread, basis
Spread, basis points over base rate BSL spread points

800

716
670
626 636
620
586 221
600
195 550
144 187
201
157 –19%
495 178
477 475
449
400 425 429

371

200
2018 2019 2020 2021 2022 2023 2024

Note: Direct-lending-spread data reflects senior secured first-lien loans and unitranche facilities. BSL data reflects loans issued to borrowers rated B-minus.
Figures may not sum, because of rounding.
¹LBO is leveraged buyout and BSL is broadly syndicated loan.
Source: LSEG LPC

McKinsey & Company

46 Braced for shifting weather

Leveraged-buyout financing shifts toward syndicated lenders
Direct lenders lost some market share to syndicated lenders in 2024. Direct lending’s share
of new-issue LBO financings decreased from 88 percent to 84 percent in deal count and from
64 percent to 54 percent in deal value. The decline was partially due to the type of deals
transacted: Larger LBO deals (greater than $500 million) grew in value faster than smaller LBO
deals. Since syndicated lenders typically have a greater capacity to make large investments
given their ability to syndicate risk across multiple parties, they provided 46 percent of financing
but just 16 percent of deals (Exhibit 2).

Private debt managers tap more insurance and other permanent capital sources
Insurance capital and other permanent capital vehicles (for example, business development
companies [BDCs], and interval funds) remain increasingly prominent sources of capital for
private debt GPs.

Private debt is particularly well suited to insurers due to its predictable cash flows, long duration, and
risk-adjusted returns, all while allowing insurers to remain within regulatory guidelines. BDCs
and interval funds, on the other hand, provide retail investors with access to private debt, but the

Web <2025>
<Global Private Markets Review 2025—Private Debt chapter>
Exhibit <2> of <6>

Exhibit 2

Financing for leveraged buyouts tilted toward syndicated lenders in 2024.

New-issue loan value Count of LBOs financed in BSL² and Syndicated
financing LBOs,¹ $ billion private credit market, number Direct lending

146 450
130
156
330
74
60 289 294
56
84
47
225
113 202
31 28
77
294 274
72 247
70 197
54 176
125

2022 2023 2024 2019 2020 2021 2022 2023 2024

Direct lending,
49 64 54 61 62 65 83 88 84
% share

Note: Figures may not sum to total, because of rounding.

¹Leveraged buyouts.
²Broadly syndicated loan.
Source: PitchBook LCD

McKinsey & Company

Braced for shifting weather 47

 GPs raising such vehicles must meet investors’ liquidity needs while remaining compliant with
regulations. These vehicles are an increasingly popular source of financing: For BDCs tracked
by Fitch, for example, unsecured debt issuances nearly tripled from 2023 to 2024, reaching an
all-time high.2

Private debt expands its footprint amid regulatory reform

Over the past decade, regulatory changes have increasingly constrained banks’ lending practices,
leading more middle-market companies to seek nonbank financing. For example, Basel IV—
the finalized reforms of the Basel III framework—will require banks to increase capital reserves in
a range of lending areas and may include new rules focused on liquidity (which could reduce
banks’ appetite for longer-duration loans). The reforms could also constrain banks’ use of internal
models and raise capital floors, limiting flexibility in the higher risk-weighted-asset segments
such as commercial real estate and specialized credit.

Banks are also increasingly partnering with private debt GPs to gain exposure to economic
activities that they hope to finance by becoming originators and distributors rather than
end owners of risk. We also observe GPs proactively seeking out such partnerships with banks.
As regulations continue to evolve, they will shape the future landscape of nonbank lending,
including in middle-market financing, where borrowers rely on flexible, long-duration capital.

In 2024, private debt managers deployed capital beyond midsize and highly leveraged businesses
into a broader range of asset types in search of downside protection and diversification. In
particular, four asset classes could increasingly shift to nonbank lenders. These include asset-
backed finance segments with higher-risk-adjusted yields (for example, aircraft loans),
long-duration infrastructure and project finance assets, residential mortgages classified as
“nonconforming” under bank regulations, and high-risk commercial real estate.3 Each
of these asset types ranks highly on at least one of three criteria that contribute to banks’
propensity to transition them off their balance sheets (Exhibit 3).

Banks are increasingly partnering

with private debt GPs to gain exposure
to economic activities that they hope
to finance by becoming originators and
distributors rather than end owners
of risk.

2
“Fitch Ratings completes peer review of 12 US BDCs,” Fitch Ratings, April 14, 2025.
3
“The next era of private credit,” McKinsey, September 24, 2024.

48 Braced for shifting weather

To remain competitive in this new ecosystem of private credit, GPs can establish or acquire
origination and underwriting capabilities specific to these new asset classes, including asset-
backed finance, project finance, and real estate debt. They can also diversify capital bases
to include longer-duration or lower-return-threshold capital pools, driving broader participation
across the risk/return spectrum.

Web <2025>
<Global Private Markets Review 2025—Private Debt chapter>
Exhibit <3> of <6>

Exhibit 3

Infrastructure, asset-backed finance, and higher-risk commercial real estate

are among the asset types most likely to transition to nonbanks.
Assessment of factors affecting nonbank penetration of US asset classes

Duration Impact to
Propensity to transition to nonbanks mismatch Ease of bank ROE
with banking origination for after “Basel III
High Medium Low deposits nonbanks endgame” Total

Corporate and Standard loans 1

commercial
finance Structured loans1

Equipment leasing

Aircraft and railcar leasing

Receivables financing

Trade finance

Commercial Regulatory <80% LTV 2 ratio

real estate
Construction loans and bridge financing

Regulatory >80% LTV ratio

Nonregulatory

Infrastructure Project finance

Customer Auto loans and leases

finance
Student loans

Unsecured personal loans

Credit card receivables

Residential mortgages

Impact on corporate loans will vary based on the type of borrowers. Examples of structured loans include acquisition finance and leverage finance.
1

Loan to value.
2

Source: Global Banking Pools by McKinsey; McKinsey analysis

McKinsey & Company

Braced for shifting weather 49

 Fundraisers: Direct lending remains strong amid a cooling market
Global private debt fundraising decreased by 22 percent to $166 billion (Exhibit 4). Despite this
decline, 2024 was the fifth-largest fundraising year ever for the asset class. In contrast,
fundraising for direct lending—the largest private credit strategy—grew by 2 percent year over
year to $122 billion, the third-highest annual total on record. Growth in direct lending has been
underway for more than a decade. Investors have committed capital for direct lending strategies
in search of high floating-rate yields, with downside protection offered by a senior position in
the capital stack.

On the other hand, mezzanine fundraising fell by more than 80 percent, accounting for $33 billion
of the $47 billion aggregate decline in private debt fundraising in 2024. Fund timing is likely to
have affected annual fundraising value for the substrategy, in which high manager concentration
makes fundraising intrinsically more volatile. Just one of the ten largest mezzanine fundraisers
of the last decade raised mezzanine capital in 2024 (compared with five in 2023 and three each
in 2022 and 2021). However, some LPs are increasingly questioning whether mezzanine funds
continue to offer compelling risk-adjusted returns, given narrowing spreads and more attractive
opportunities elsewhere in private credit.

Fundraising declined across geographies as well. In North America, which accounts for over
half of the global private debt fundraising total, fundraising fell by 18 percent in 2024, although it
still grew at a 9 percent CAGR over the past five years. In contrast, Europe and Asia saw sharper
one-year declines of 30 percent and 43 percent, respectively. Both regions also posted negative
five-year CAGRs of –6 percent and –18 percent.

Two notable themes emerged in our analysis of 2024’s private debt fundraising numbers:
increased manager concentration and a steady investor appetite.

Global private debt fundraising

decreased by 22 percent to $166 billion.
Despite this decline, 2024 was
the fifth-largest fundraising year
ever for the asset class.

50 Braced for shifting weather

Web <2025>
<Global Private Markets Review 2025—Private Debt chapter>
Exhibit <4> of <6>

Exhibit 4

Private debt fundraising declined 22 percent in 2024.

Global private debt fundraising, by substrategy,1 $ billion
247 2019–24 2023–24
CAGR, % growth, %
230
213 Total 1.7 –22.1

193 Direct 4.9 1.9

–22% lending

154 166
Special –2.3 –6.7
153 136 situations
74 120
134 137
126 Mezzanine –6.0 –82.6
112
Distressed –9.2 –56.2
42 67 96 36 122 debt
68
49
74 70 25 27 Venture –7.5 –48.7
64 19
29 46 debt
11 23 19 19
31 12
41 31 29
16 10 28 40
23 30
8 15 17 17 13 31 25
9 53 47
13
8 26 33 20 23 7
15 23 23 20 17 13
13 10
2011 2013 2015 2017 2019 2021 2023 2024

Direct lending, as % of total

80

60

40

20

0
2011 2013 2015 2017 2019 2021 2023 2024
1
Excludes secondaries, funds of funds, and coinvestment vehicles.
Source: Preqin

McKinsey & Company

Braced for shifting weather 51

 Private-debt fundraising is growing more concentrated
Fundraising concentration in private debt is gradually increasing. In 2024, the top five managers
raised 38 percent of private debt funds, a notable increase from 29 percent in 2023 and the ten-
year average of 29 percent (Exhibit 5).

Scale can often be a source of competitive advantage in the private debt industry. Lenders
with greater financial resources can offer borrowers a range of financing solutions, provide
timely liquidity, and maintain larger positions across different capital segments without incurring
excessive concentration risk. The ability of larger lenders to lead a facility through scaled
commitments can also be advantageous in deal access and deal terms. Moreover, GPs that
have scale are better able to invest in building the incremental capabilities (for example,
in operations or technology) required to attract alternative capital sources, such as retail and
insurance capital.

Web <2025>
<Global Private Markets Review 2025—Private Debt chapter>
Exhibit <5> of <6>

Exhibit 5

Concentration of private debt fundraising reached a ten-year high.

Share of annual private debt fundraising, %

20 22
27 26 29
Top 5 32 34 31 30
38
13 12
12 12
Top 6–10 12 12 11 16
14
24 22
19 17
21 17
Top 11–25 19 22
20 24

23
35
36 34 32 32
Top 26–100 32 30
29 28
21
7 8 10 8 9 7
Long-tail managers 5 4 3
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Total annual
fundraising, 112 126 134 137 153 193 247 230 213 166
$ billion

Source: Preqin

McKinsey & Company

52 Braced for shifting weather

Investor appetite holds steady
Although fundraising fell in 2024, McKinsey’s 2025 LP Survey reveals that investor appetite for
private debt remains strong. Forty-three percent of the surveyed LPs say they expect to increase
private debt target allocations over the next 12 months—more than the share that expressed a
desire to invest more in private equity or real estate. Investors’ interest in the asset class is largely
driven by private debt’s perceived superior risk-adjusted returns and investors’ desire for
portfolio diversification.

LPs: Subdued but consistent performance

The pooled net IRR for private debt in 2024 was 6.6 percent (this figure is annualized based
on an IRR of 4.9 percent in the first three quarters of the year). Despite subdued returns, private
debt outperformed private equity and real estate in 2024 and continues to attract LPs with
its low return dispersion and absolute returns comparable to real estate, infrastructure, and
natural resources.

Dispersion of returns remained low among private debt managers. The median IRR and
percentile spreads for 2012 to 2021 vintage funds, as of September 2024, reveal that private
debt managers continued to provide investors with a narrower spread of returns relative
to other asset classes. There was a 4.7 percent difference between top- and bottom-quartile
private debt performance, compared with the 15 percent spread in private equity and
8 percent spread in infrastructure (Exhibit 6).
Web <2025>
<Global Private Markets Review 2025—Private Debt chapter>
Exhibit <6> of <6>

Exhibit 6

The performance gap between top- and bottom-quartile private debt funds
is narrower than for the other asset classes.
Performance by asset class, median IRR and percentile spreads for 2012–21 vintage funds,1 %

Top 25% Median Bottom 25%

Private equity Real estate Private debt Infrastructure Natural resources

20.2

15.1 14.3
12.7 12.5 13.0
11.6
4.7 7.5 11.2
8.7 9.3
7.8 11.5 8.1
6.9
5.1 5.5
3.1
1.0

IRR spreads calculated for separate vintage years for 2012–21, and then averaged out. Median IRR was calculated by taking the average of the median IRR for
1

funds within each vintage year. Net IRR to date through Sept 30, 2024.
Source: MSCI Private Capital Solutions

McKinsey & Company

Braced for shifting weather 53

 Default rates remain low—for now
According to available data on private debt defaults, which is often not comprehensive, the
default rate in the asset class has historically been low (leading to lower losses), but it increased
marginally in 2024.

In 2024, Proskauer’s Private Credit Default Index rose to approximately 2.7 percent in the fourth
quarter, compared with 1.8 percent in the first quarter.4 In comparison, broadly syndicated
loans posted a 4.7 percent default rate as of year-end 2024, up from 4 percent at the beginning
of the year.5

The difference between the default rates for the two strategies may be the result of private debt
managers adopting superior risk management strategies, demonstrating an ability to better
manage total returns compared with their counterparts in both syndicated and public markets.
But default-driven losses could begin to rise, especially if the global economy enters a
recessionary environment. Meanwhile, a higher-for-longer interest rate outlook and intensifying
competition for deal flow could lead to riskier underwriting and more defaults.

In the coming years, private debt could play an increasingly prominent role in lending against
distressed and opportunistic hard assets, as well as asset-backed lending in nontraditional
sectors. This strategic diversification will likely highlight the ability of private debt GPs to prioritize
yield generation while retaining downside protection—key strengths of the asset class—and
further solidify private debt as not only a resilient but also an adaptable asset class.

4
“Proskauer announces Q4 private credit default rate of 2.67 percent,” Proskauer, January 21, 2025.
5
“B SL posts strong returns in 2024 amid robust investor demand,” LSTA, January 9, 2025. Default rate reflects defaults by
count, inclusive of liability management transactions, as reported by LSTA. Definitions and inclusion criteria for defaults may
vary across sources.

54 Braced for shifting weather

Infrastructure
poised for clearer
conditions
The infrastructure asset class had a mixed year, with robust
deal activity and stronger relative performance on the one
hand and slower fundraising on the other.

Braced for shifting weather 55

 From one perspective, 2024 may have seemed like a tougher year than 2023 was for infrastructure
leaders. Fundraising was down again, falling 15 percent year over year to become the lowest
in a decade. GPs spent more time on the fundraising trail compared with the prior year. And the
capital-raising environment appeared less welcoming to newcomers than ever before.

However, there are several reasons to believe that the asset class is inching closer to a full
recovery. Capital deployment accelerated in 2024. Deal value increased by 18 percent over the
prior year, making 2024 the second-highest year on record (behind 2022). Our analysis suggests
that dealmakers also executed bigger deals, since deal count increased only 7 percent over
2023. This active deployment resulted in dry powder decreasing to $418 billion as of the first half
of 2024, which was 10 percent lower than that at the end of 2023.

Infrastructure also appears to be the asset class in which the greatest number of investors want
to increase allocations in the next 12 months (selected by 46 percent of the total respondents),
according to the McKinsey LP Survey.1 There are several reasons for this bullish view. Global trade,
which grew to nearly $33 trillion in 2024,2 has spurred major public and private investments in
ports, rail, and logistic infrastructure. The global energy transition continues to require trillions of
dollars’ worth of investment into infrastructure: McKinsey’s research shows that the total of
new physical assets for clean energy and enabling infrastructure could reach approximately
$6.5 trillion per year by 2050.3

Then there are demographic shifts: growth in population (expected to increase by nearly two
billion in the next 30 years) and wealth ($160 trillion in wealth created in the past two decades),4
which will likely boost demand for infrastructure, especially critical sectors like roads and energy.
At the same time, the demand for power is also rising. In the United States, for instance, retail
sale of electricity increased by 2 percent in 2024 from a year prior, after 15 years of near-flat
growth, due in large part to growing electricity needs of data centers (with the power demand
being accelerated by the use of AI and cloud computing).5

To capitalize on these opportunities in the current market environment, infrastructure managers

are also changing how they invest—and generate returns. In previous years, infrastructure
GPs tended to invest in distinct infrastructure verticals. Now we observe heightened investment
at the intersection of different themes (energy and digital for data centers being a notable
example). At the same time, greater competition for assets and the end of an extended period
of “cheap money” is making active ownership increasingly important—if not essential—to
drive returns. Value-oriented infrastructure GPs that are willing to focus on and underwrite
value creation initiatives could gain strong competitive differentiation, given the sustained
LP interest in committing to the strategy.

1
January 2025, n = 333.
2
“Global trade hits record $33 trillion in 2024, driven by services and developing economies,” UN Trade and Development,
March 14, 2025.
3
Detlev Mohr, Ishaan Nangia, and Christoph Schmitz, “Introduction: February 2024,” McKinsey, February 26, 2024.
4
"Global issues: Population,” United Nations, accessed on March 19, 2025; “The future of wealth and growth hangs in the
balance,” McKinsey Global Institute, May 24, 2023.
5
“Electricity data browser,” US Energy Information Administration, accessed March 2025.

56 Braced for shifting weather

Dealmakers and operators: Regaining their stride
Infrastructure dealmaking rebounded in 2024 as GPs accelerated their pace of capital
deployment. Globally, more deals were done, and they were made at higher prices. Deal value
increased by 18 percent, while deal count increased by 7 percent during the year.

Several infrastructure subsectors recorded robust deal activity. Deals in the telecom sector
accounted for 16 percent of aggregate infrastructure deals by value in 2024, up from 3 percent
in 2015 (Exhibit 1). This growth was primarily driven by rising demand for fiber networks and
data centers. In fact, data centers composed 58 percent of telecom deals, compared with only
2 percent in 2015.
Web <2025>
<Global Private Markets Review 2025—Infrastructure chapter>
Exhibit <1> of <5>

Exhibit 1

Telecommunication deals accounted for a larger share of total

infrastructure deal value in 2024 than they did in previous years.
Global infrastructure deals, by sector, % of total deal value 2023–24
growth, %

3 1 4
3 5 Other 265.9
3 5
3 4 9 10 12
3 2 12
5 16 Commodities 36.7
3 4
5 4 5
9 4 3 4 Telecommunications 58.6
17
4 4 3
4
16 19 Environment 21.4
21 4
15 20 Social 75.2
23 20 23
16 Energy –10.5
17
11
16 11
Power 29.9
8
17 9
10 11 Renewables 8.1
19 13
17 Transport 16.0
26 17
21
21
22
24
22

46
39 38 36
32 32
29
26
22 22

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: Figures may not sum to 100%, because of rounding.

Source: Infralogic database, ION, accessed March 2025

McKinsey & Company

Braced for shifting weather 57

 Renewable energy (from sources including wind, solar, biomethane, and biomass) also continued to
be a core investment theme, representing 22 percent of infrastructure deal value in 2024, slightly
above the sector’s ten-year average of 21 percent. Although transport continued to hold the
largest share of deal value (roughly 22 percent), the sector’s margin has considerably decreased
over the past decade (in 2015, it accounted for 46 percent of deal value).

Our analysis highlights three main trends for infrastructure dealmakers and operators to
consider: convergence of energy and digital, emphasis on value creation, and increase in
investment in services.

Convergence of energy and digital

In the infrastructure sector, the clearest example of the so-called hybridization of assets is
between energy and digital (such as with data centers).6 The proliferation of AI and cloud
computing has increased the demand for power substantially. In 2024, the demand for data
center power was 66 gigawatts. A proprietary McKinsey demand model projects it to reach
219 gigawatts by 2030, reflecting a 22 percent annual growth rate. Data center owners and
operators will likely need to upgrade their existing transmission and distribution infrastructure
to meet this growing power demand.

Many GPs are also looking at building or acquiring data centers in new markets where power
is more abundant (for example, Indiana in the United States and Brazil). At the same time,
infrastructure managers are paying more attention than ever to renewable generation, small
modular reactors, behind-the-meter energy storage, and (for now) natural gas to power
these centers. Consider the example of Cumulus Data Assets in the United States, a
960-megawatt data center campus that is powered by a nuclear power plant adjacent to the
facility and was sold to a cloud service provider.7

Emphasis on value creation

Our work with infrastructure investors reveals that dealmakers are increasingly focusing on
active ownership of assets to generate value and deliver desired returns to investors. Successful
GPs are pursuing several priorities beyond traditional value creation planning with their portfolio
companies. Notably, GPs can manage project timelines through careful strategic planning to
optimize capital deployment, prevent costly delays, and maximize asset value, especially in an
environment where project delays are increasingly penalized with fees.

The issue of labor management is an important aspect of strategic planning. Dealmakers and
operators could tackle the challenge of a lack of skilled labor—particularly in the United States—
by boosting productivity (for example, through automation), focusing on retaining and upskilling
talent, and creating flexibility across geographies (for example, by using digital twins and remote
controls) so that skilled labor can participate in projects remotely.

Increase in investment in services

Infrastructure GPs and LPs are increasingly recognizing that service businesses can often have
infrastructure-like attributes. For example, service businesses can be critical to various value
chains (such as maintenance services to the water utility value chain) and often resemble

6
“Hybridization of assets” refers to bringing together two key investment themes or subsectors, allowing investors to have
exposure to multiple themes through a single asset.
7
“Talen Energy announces sale of zero-carbon data center campus,” Talen Energy press release, March 24, 2024.

58 Braced for shifting weather

traditional infrastructure investments. They often have predictable revenue characteristics, are
driven by mission-critical spending (for example, supporting the energy transition by shifting
to more cold storage), and exhibit high barriers to entry due to the need for scale. As a result, the
definition of an “infrastructure asset” is fast expanding to include not just hard assets but also
maintenance of data centers and telecom assets, pipeline inspections, and more.

Fundraisers: Facing ongoing hurdles

2024 was undeniably a tough year to be fundraising for infrastructure and natural resources. An
aggregate $106 billion was globally raised for the asset class, down by 15 percent from 2023,
becoming the lowest amount raised in the past decade (Exhibit 2). The number of infrastructure
Web <2025>
<Global Private Markets Review 2025—Infrastructure chapter>
Exhibit <2> of <5>

Exhibit 2

Infrastructure fundraising fell for the second consecutive year.

Global infrastructure and natural resource fundraising, by region, $ billion1

174 2019–24 2023–24

CAGR, % growth, %
163
Total –5.9 –15.3

North America –14.8 –57.0

144 –39%
141
138 Europe 1.1 40.6
134
130 63 Asia 9.3 344.4
90 125
120 Rest of world –7.9 11.0
–15%
56
106
52 77
73 62

90
62 34
80
77

45 32
62 25 72

46 62
43
22 50
41 37 42 47
15
39
21 46
36
22
17 15
4 11 22 22
16 9 13 15
8 7 6
14 14 13 3
8 6 8 8 7 8 11 8 9 6 7
2011 2013 2015 2017 2019 2021 2023
2024
Note: Figures may not sum to totals, because of rounding.
1
Excludes co-investment vehicles, funds of funds, and secondaries.
Source: Preqin database, accessed March 2025

McKinsey & Company

Braced for shifting weather 59

 and natural resources funds raised declined to 115, from 147 in the prior year. Funds were also in
the market for longer, reaching a record high of 26 months, nine months longer than it took just
five years ago. The proportion of dollars raised by first-time funds also declined to its lowest ever,
making up only 1 percent of all fundraising in 2024.

Some of these declines could likely be due to scale. Larger funds tend to influence fundraising to
a great extent in infrastructure (Exhibit 3). And in 2024, two of the largest historical fundraisers
in the asset class did not close a fund. Both GPs, in addition to around ten other funds, are now in
the market targeting funds of over $10 billion or similar size.

Web <2025>
<Global Private Markets Review 2025—Infrastructure chapter>
Exhibit <3> of <5>

Exhibit 3

The largest funds heavily influence infrastructure fundraising.

Global infrastructure and natural resource 2019–24 2023–24
fundraising, by fund size, $ billion1 CAGR, % growth, %
174
<$250 million –20.9 –38.3
163 10

10 $250 million– –11.4 –15.9

11 500 million
144 6
141 19 $500 million– –15.3 –42.8
138 1 billion
10 134
10 22
130 12
11 10 125 $1 billion– 6.9 105.8
120 11 15 5 billion
5
16 12 7
11 $5 billion– –7.8 13.8
16 23 106 10 billion
52
12 17 18 3
28
23 6
>$10 billion –19.5 –79.0
90 20
10 10
8
77 82 29
9 42 12
9
62 5 55
19 54
6 15 59
14 61
6 69 65
41 14 25
6
28 71
6 24
49 19
6 19 52
28
17
5 32
23 27
21 17 20 18
14 16
8 11
5
2011 2013 2015 2017 2019 2021 2023
2024
Note: Figures may not sum to totals, because of rounding.
1
Excludes fund of funds and secondaries.
Source: Preqin database, accessed March 2025; McKinsey analysis

McKinsey & Company

60 Braced for shifting weather

In 2024, Europe experienced a 40 percent year-over-year increase in fundraising. Meanwhile in
North America, fundraising declined by 57 percent year over year. Both of these large swings in
fundraising may be attributed to the timing of funds coming to market.

Two key trends stand out as we look at the infrastructure fundraising landscape: the sector
increasing its demand for value-added strategies and limited partners embracing more risk for
superior returns.

Increasing demand for value-added strategies

Value-added vehicles accounted for 34 percent of total infrastructure fundraising in 2024 (the
ten-year trailing average is 19 percent), buoyed by increasing LP interest in the strategy (Exhibit 4).
On the other hand, debt and core-plus strategies lost momentum. Fundraising for core-plus
vehicles accounted for 13 percent of the total, lower than the ten-year average of 29 percent.
Meanwhile, infrastructure debt fundraising fell to 4 percent against a ten-year average of 9 percent.
These patterns are indicative of LPs increasingly moving further along the risk-reward spectrum
to meet their return expectations. Given the shift toward value-added investing, GPs may do well
to focus on greater active management of assets.

Web <2025>
<Global Private Markets Review 2025—Infrastructure chapter>
Exhibit <4> of <5>

Exhibit 4

In 2024, the growth of fundraising that used the value-added strategy for
infrastructure was higher than the growth of other strategies.
Global infrastructure and natural resource
fundraising, by strategy, $ billion1 2019–24 2023–24
CAGR, % growth, %
70
Infrastructure, 1.8 228.4
value added
60
Infrastructure, 9.9 139.7
core
50
Natural 0.6 –48.4
40 resources

Infrastructure, –22.5 –69.2

30 core plus

20 Infrastructure, –6.0 –4.0

opportunistic

10 Infrastructure, –26.4 –74.6

debt

0
2007 2010 2013 2016 2019 2022 2024
1
Excludes co-investment vehicles, funds of funds, funds with an undefined strategy (~1 % of fundraising), and secondaries.
Source: Preqin database, accessed March 2025

McKinsey & Company

Braced for shifting weather 61

 LPs: Embracing more risk for superior returns
Infrastructure was the top-performing private asset class in 2024, with a one-year pooled net
IRR of 6.1 percent, compared with 8.5 percent in 2023. Even so, 2024 marked the asset class’s
weakest performance since 2011 (infrastructure has generated an approximately 9 percent
annual average since 2000).

As LPs search for superior returns, they are increasingly seeking higher-risk opportunities.
Brownfield and greenfield infrastructure projects, for example, accounted for 52 percent of
infrastructure deals—the highest proportion on record—and a 20 percent gain against secondary-
stage projects over the past seven years. This may suggest that GPs are increasingly buying
based on the underlying asset value and potential appreciation as opposed to consistent
cash flows.

The long-term appeal of infrastructure continues to remain robust as well. In the McKinsey LP
Survey, 46 percent of respondents indicate a desire to increase allocation to infrastructure over
the next 12 months (versus 43 percent a year ago)—the highest for all private capital asset
classes (Exhibit 5). This is despite LPs being overallocated to infrastructure by approximately half
a percentage point, according to CEM Benchmarking.

Web <2025>
<Global Private Markets Review 2025—Infrastructure chapter>
Exhibit <5> of <5>

Exhibit 5

The value-added strategy was the infrastructure strategy most favored

by survey respondents.
Expected target asset allocation for infrastructure1 Decrease Increase

Net Net Net change at 3 years

Next 12 months, change, Next 3 years, change, vs 12 months,
% of respondents %2 % of respondents %2 percentage points

Core 9 32 23 11 42 31 +8

Value added 5 44 39 6 50 44 +5

Growth 6 37 31 9 48 39 +8

Opportunistic 9 39 30 9 49 40 +10

Debt 18 29 11 19 31 12 +1

Overall 10 36 26 11 44 33 +7

Note: Figures may not sum to totals, because of rounding.

Question: Over next 12 months and 3 years, do you anticipate your target allocation in each infrastructure class to increase, stay the same, or decrease?
1
2
Calculated as share of respondents who responded “increase” minus share of those who responded “decrease.”
Source: McKinsey LP Survey, January 2025 (n = 333)

McKinsey & Company

62 Braced for shifting weather

In the McKinsey LP Survey, 44 percent of the respondents say that they plan to increase their
allocations to the infrastructure value-added strategy, more than they report for any other
infrastructure strategy. Within LP groups, pension funds have the highest targeted allocation
to infrastructure, as they are attracted to the more predictable returns of the asset class.
Meanwhile, respondents from family offices (a relatively smaller contributor to overall
infrastructure assets under management compared with other LP groups) show the greatest
desire to increase target allocations over the next 12 months. Their heightened appetite
is likely driven by a willingness to accept longer hold periods and lower need for short-term
liquidity, compared with other investors.

Infrastructure endured some challenges along its path to recovery in 2024. Yet stakeholders’
conviction in the asset class remains undeniably strong, as evidenced by increasing deployment
from GPs and LPs’ desire to allocate more capital. This may well be because the secular drivers
of infrastructure investment opportunities (more people, more activity, and limited government
balance sheets) are strengthening, not diminishing. With expanding definitions of “infrastructure”
and “hybridization of assets,” an elevated need to increase performance and return capital to
LPs, and continued challenges in the deal environment, value creation through active ownership
has emerged as a key tenet of success for infrastructure investors, a theme that will likely
persist into the future.

Braced for shifting weather 63

 Industry
deep dives

64 Braced for shifting weather

Alternative assets get
more alternative: The rise
of novel AUM forms
Nontraditional sources of capital are accounting for a growing share of
private markets’ assets under management (AUM). Here’s why.

Braced for shifting weather 65

 For many years, asset managers and investors have generally used a single metric to track the
inexorable rise and health of private markets: assets under management. As the thinking goes, if
investors are giving private managers access to more and more capital, they probably trust that
their investment decisions are valid and that private markets are stable. That view of AUM may
require some rethinking, however.

Between 2000 and 2023, total AUM across private market asset classes increased almost
20-fold, reflecting CAGR of 13 percent—even factoring in leaner times for private markets in
2022 and 2023.1

However, AUM for private markets grew by just 1 percent between year-end 2023 and the first
three-quarters of 2024. This slowed growth, however, accounts for only those assets managed
within closed-end commingled investment vehicles. It fails to take into account an alternative
segment in private markets comprising a range of nontraditional forms of capital that reflects
potentially more than half the scale of the AUM of closed-end funds.

The real measure of AUM needs to account for this alternative segment. For the purposes of this
article, we consider three types of nontraditional capital that have become popular in recent
years: higher-liquidity products, such as open-end funds; LP demand-driven products, such as
separately managed accounts (SMAs) and co-investments; and permanent capital, such as
insurance capital.

According to our analysis, these three sources of capital contributed approximately $7 trillion
to $8 trillion in AUM in 2024, nearly 20 percent higher than in the prior year. And when this figure
is incorporated in the overall AUM for private markets in 2024, that number increases by
5 or 6 percent. Consequently, the size of the private market industry in 2024 is also increased
by nearly 50 percent to approximately $22 trillion.

In this article, we explore the growing shift to alternative forms of private capital—and what GPs
can do to tap into this trend.

Why are alternative sources of capital proliferating?

Although traditional AUM remains the bread and butter of the typical GP (and core to GP
economics), alternative capital pools are increasingly gaining traction for three main reasons.
GPs and regulators are democratizing access to private markets for retail investors, and
they are developing more customized investment solutions for institutional investors beyond
the commingled fund model. At the same time, the private market universe is also expanding,
with a greater number of new managers and active firms.

Retail capital pools

Historically, many capital pools, particularly retail investors, couldn’t access private capital
opportunities due to regulatory restrictions, minimum requirements for check size, and liquidity
constraints when it came to investing using commingled fund structures. Over the past few

1
Figures are for traditional AUM, which includes closed-end commingled vehicles. Private market asset classes include
infrastructure and natural resources, private debt, private equity, and real estate.

66 Braced for shifting weather

Although traditional AUM remains
the bread and butter of the typical GP,
alternative capital pools are increasingly
gaining traction.

years, GPs have addressed these challenges by setting up nontraditional vehicles and innovative
fund structures that retail investors can access more easily—a growing and largely untapped
pool of nearly $60 trillion.2

Governments around the world have also democratized access to private markets by easing
regulations in recent years. Regulatory changes allowing 401(k) plans to invest in alternative
investment funds were introduced in the United States in 2020, giving a broader group of
investors access to opportunities for private capital investment. Countries in Europe introduced
similar regulatory changes, including an update to the European Long-Term Investment Fund
regulation that took effect in 2024. These primarily long-term investment funds allow for greater
retail access than typical closed-end funds do.

Still, many retail investors have found it challenging to overcome regulatory and logistical
obstacles, such as minimum qualifications to invest in alternative investments and large minimum
commitments to invest in funds. Supply-side innovation has helped some retail investors
overcome these barriers. For example, there are aggregators that connect a network of wealth
managers with private-capital-fund products. They help wealth managers access private
capital products for their clients and assist private capital firms with the operational challenges
of having a large, segmented LP base. There has also been an increase in the number of fund
administration services available, with capabilities specifically suited to managing the financial
and accounting needs of funds with a large number of investors—particularly retail investors.

Customized investment solutions for LPs

Many GPs are also developing new offerings for large institutional investors, giving them greater
customization, exposure, influence, and liquidity than closed-end commingled vehicles provide.
Some institutional investors are tailoring their private market exposures so that they have greater
choice and direction over their investments. For example, some LPs are creating multibillion-
dollar joint ventures with trusted GPs to deploy capital toward achieving their strategic goals
(such as energy transition efforts and regional development) and gain benefits of scale.

Expanding the private market universe

Alternative sources of capital are also proliferating alongside growth in new managers and
investment theses. Consider these statistics: Although the number of first-time buyout
funds declined in 2024, there are now more than 17,000 private market firms active globally,

2
Performance Lens Global Growth Cube, McKinsey, accessed March 2025.

Braced for shifting weather 67

 which is 2.4 times more than a decade ago. Moreover, the number of active firms has increased
every year for the past ten years across all asset classes and geographies. This increase in the
private market universe is pushing GPs to widen their capital pools to maintain a strong footing.

What value is at stake?

Alternative sources of capital can take many forms, but the three highlighted in our analysis—
higher liquidity products, LP demand-driven products, and permanent capital—show the
greatest popularity and promise. Despite the lack of transparent data on alternative sources
of capital, our analysis reveals that these three are estimated to have added $7 trillion to
$8 trillion to the overall global private capital AUM in 2024, bringing the aggregate AUM to
approximately $22 trillion (Exhibit 1).

Web <2025>
<Global Private Markets Review 2025—Alternative forms of capital>
Exhibit <1> of <1>

Exhibit 1

Alternative forms of capital represented nearly 33 percent of total private

market assets under management in 2024.
Estimated private capital assets under management (AUM) in 2020–24, $ trillion

~22 2020–24 2023–24

CAGR, % CAGR, %
~1.5–2.0
~1.0–1.5 Total ~12 ~6
~33%
~4.0–4.5 Alternative Alternative
forms of forms of Permanent capital1 ~10
capital as capital
~14 share of
~1.0–1.5 total

~27% ~0.5–1.0 Higher-liquidity ~15

products2 ~20
Alternative ~2.0
forms of
capital as LP demand-driven ~20
share of products3
total ~15.0

Traditional AUM 10 1
~10.0
(closed-end commingled)4

2020 2024

Note: Figures may not sum, because of rounding.

1
Insurance capital held on balance sheets.
2
Includes evergreen products, intermittent-liquidity products, and private and perpetual-life business development companies.
3
Includes separately managed accounts and co-investments.
4
As of June 30, 2024.
Source: CEM Benchmarking; Cerulli; Henry H. McVay et al., No turning back: KKR 2024 Insurance Survey, Kohlberg Kravis Roberts, April 2024; Preqin;
StepStone; Sovereign Wealth Fund Institute; McKinsey analysis

McKinsey & Company

68 Braced for shifting weather

Growth in nontraditional capital has also outpaced traditional AUM growth in recent years,
increasing an estimated 16 to 18 percent annually since 2020, compared with 10 percent growth
in traditional AUM. The gap widened in 2024, when alternative capital sources grew between
18 and 20 percent, while traditional capital registered tepid growth of just 1 percent.

In reviewing various forms of alternative capital for our analysis, we carefully considered a range
of factors. To avoid the double counting of capital, our private capital AUM figures don’t include
primary or secondary funds of funds. These vehicles represent an estimated additional $2 trillion
in AUM that has grown by nearly 8 percent per year since 2020—driven partly by the surging
interest in secondaries, which hit an all-time high in 2024.

Additionally, liquid-alternative funds (which include select mutual funds and ETFs, as well as
some closed-end funds) are highly liquid products by alternative investment standards.
They aren’t truly private, and many of the strategies that they encompass (such as long-short
equity strategies, derivative strategies, and many commodities strategies) fall outside our
definition of “private capital.” These represent approximately $1 trillion in additional AUM and
have grown at approximately 10 percent annually since 2020. Similarly, we don’t include
public business development companies and public real estate investment trusts (given that
they are public vehicles). However, they are worth noting, as they invest in private assets,
similar to their private counterparts. Additionally, we haven’t included AUM contribution from
hedge funds in our analysis.

Higher-liquidity products
Higher-liquidity products are vehicles that are open-ended or provide intermittent liquidity to
investors. Retail investors that need higher (and more frequent) liquidity ideally want private market
returns with public-market liquidity. For more traditional LPs, such as pension funds and family
offices, the increased liquidity provided can play a vital role in overall portfolio construction.

Higher-liquidity vehicles include the following:

— evergreen funds that are open-ended limited-partnership fund structures

— real estate investment trusts that aren’t traded on an exchange

— interval funds, which are intermittent-liquidity strategies that must provide monthly or
quarterly liquidity

— tender offer funds, which are similar to interval funds but leave the liquidity to
manager discretion

— BDCs that aren’t traded on any exchange, which are less liquid than public BDCs are
and typically operate similarly to other intermittent-liquidity vehicles but still lend funds to
small and mid-size businesses like public BDCs do

Across these fund structures, we estimate that there’s $1 trillion to $1.5 trillion in AUM, which has
grown at approximately 16 percent per year since 2020. Additionally, these products contribute
an estimated $250 billion to $600 billion in fund investments and co-investment, indicating an
even broader impact of higher-liquidity vehicles than by direct AUM alone.

Braced for shifting weather 69

 Products driven by LP demand
LP demand-driven offerings, including SMAs and co-investments, give LPs greater (or more
direct) control over, exposure to, and influence on the investment of funds. GPs often use them to
deepen their relationships with investors.

An SMA is a customized vehicle through which a single LP typically commits capital. By offering
multiple SMAs, GPs often garner larger commitments than they would otherwise receive.
Based on our analysis, the AUM dedicated to SMAs was between $1.5 trillion and $2 trillion in
2024 and up by 16 to 18 percent per year since 2020.

LPs are also interested in co-investment opportunities because they can double down on their
exposure to particular investments and reduce their fee payments in the process. Through
these co-investments, GPs can also make bigger investments than the fund size alone would
allow. The AUM driven by co-investment has increased by 20 to 25 percent per year since
2020 and totaled more than $2.5 trillion in 2024.

Permanent capital
Permanent capital is largely sourced from insurance companies. Historically, insurance
companies have allocated a portion of their assets to alternative investments, most typically
those assets that were expected to be held for a long period of time. More recently, however,
leading GPs have started acquiring insurance business units with the intention of using the
insurer’s long-held assets on the balance sheet as a pool of permanent capital that could be
allocated for private capital investments.

In addition, insurers not backed by private capital firms are also increasingly investing in funds,
permanent-capital entities, private placements, and “sidecars,” among other modes of entry. On
top of investments into fund structures previously discussed (such as open-ended funds),
the size of private capital AUM from these insurance capital pools is estimated to be $1.5 trillion
to $2 trillion, up by nearly 10 percent annually since 2020. This estimate doesn’t include an
additional $2 trillion of insurance assets invested in fund structures and managed private market
products—primarily traditional, closed-end vehicles.

What’s the path forward for GPs?

Given the shifts in the composition of private capital fundraising and AUM, GPs must begin
to adapt their fundraising and investor relations efforts. There are two ways by which GPs
can set themselves up for success: by restructuring and growing their fundraising team and
by switching to a solution mindset.

Restructure and grow the fundraising team

GPs can increase the size of their fundraising team and ensure it sources capital from both
mainstream and alternative sources (for example, traditional versus SMAs and pension
funds versus retail investors). The team must also actively seek out LPs that have had less
exposure to private capital. Indeed, early movers are already building out armies of
fundraisers to educate potential investors on the options now available to them, ensuring
that their products are seen and understood. These new fundraising activities can
include a mix of insourced and outsourced capabilities.

70 Braced for shifting weather

Switch from a fundraising to a solution mindset
For more tailored products, such as SMAs and co-investments, GPs can curate a team dedicated
to the specializations. The team would understand its target LPs’ distinct goals and problems
and offer appropriate solutions. Since extra resourcing is likely to compress GPs’ margins, they
would do well to become more efficient in their back office and benefit from economies of scale.

The story of the rise in alternative investments is one of how managers are excelling at supply
side innovation to sustain—and boost—demand from a range of investors. In this shifting
landscape, using only traditional AUM as a proxy for total private market AUM is akin to using
manufacturing alone as a proxy for GDP: What about everything else? It will be critical
for private market leaders to take these trends into account and expand their views on both
traditional and nontraditional sources of capital.

Alexander Edlich is a senior partner in McKinsey’s New York office; Christopher Croke is a partner in the London
office; Paul Maia is a partner in the Washington, DC, office; and Rahel Schneider is an associate partner in the
Bay Area office.

Braced for shifting weather 71

 Private equity’s path
to clearing the historic
exit backlog
Exiting assets has become harder than ever before—but GPs
can take some actionable steps to execute a sale in a timely and
profitable manner.

72 Braced for shifting weather

Private equity (PE) sponsors are grappling with a ballooning exit problem.

Although 2024 saw a modest rise in the sales of private-equity-backed companies—up 8 percent
by value after two consecutive years of decline—the global backlog of sponsor-owned assets
in their divestment period, awaiting an exit,1 is bigger than at any point in the past two decades—in
terms of value, count, and as a share of total portfolio companies.

Consider these statistics. In 2024, more than 18,000 companies had been under PE ownership
for more than four years—more than six times the number in 2005.2 This means that 61 percent of
buyout-backed portfolio companies have been held beyond the four-year mark by sponsors.
The average hold time for buyout assets was 6.7 years in 2024, a full year more than the 20-year
average of 5.7 years.

In 2024, we saw a mismatch in valuation expectations between buyers and sellers that led to
several sales processes being halted. Many sponsors informally communicated to the market
about the potential sale of several long-in-the-tooth assets, avoiding formal auction processes
for fear that they would fail.

In this article, we explore the steps GPs can take to increase the chances of their assets exiting in
a timely and profitable manner. After all, while GPs are generally viewed as buyers of companies,
it is the sale of these assets that delivers returns.

In 2024, more than 18,000 companies

had been under PE ownership for
more than four years—more than six
times the number in 2005.

1
Longer than four years of ownership.
2
Excluding add-ons.

Braced for shifting weather 73

 Private equity’s exit challenge
In 2024, the average PE sponsor owned more companies, valued higher, and held for longer
relative to historical averages. The sponsors are anxious to sell these assets—both in good time
and at attractive prices—for several reasons. For one, delays in selling companies have made
fundraising challenging for GPs, as demonstrated in McKinsey’s Global Private Markets Report
2025. Many LPs are withholding new commitments until they receive distributions, which exits
enable. In our 2025 McKinsey LP Survey, 21 percent of respondents cited distributed to paid-in
capital (DPI)3 as a critical performance metric when evaluating GPs, up from 8 percent three
years ago (Exhibit 1). In fact, DPI is now tied with multiple on invested capital (MOIC)4 as the
second-most-important performance metric after IRR.

In addition, extended holding periods due to a lack of suitable exits can jeopardize returns. This
could be because returning the same IRR over a longer hold period requires GPs to generate
a higher MOIC, placing a greater value creation burden on operators. This issue becomes more
critical given that buyout entry multiples have nearly doubled in the past 15 years—investors
are paying more to buy assets, which means they need to sell them at higher prices to deliver the
same returns.

Web <2025>
<Global Private Markets Review 2025—Deep dive: Getting exits right>
Exhibit
Exhibit <1>1 of <2>

Distributed to paid-in capital has become a key performance metric for

limited partners.
Most critical performance metric for LPs when evaluating a manager’s performance1
Change in ‘most critical’
Three years ago, Today, metric, 3 years ago vs today,
% as most critical % as most critical percentage points

IRR 42 35 –7

DPI² 8 21 +13

TVPI/MOIC³ 15 21 +6

PME4 5 8 +3

TVM5 5 7 +2

1
Percentage of respondents that marked each performance metric as a 5 out of 5 (or most critical).
2
Distributed to paid-in capital.
3
Total value to paid-in capital/multiple on invested capital.
4
Public-market equivalent.
5
Time value of money.
Source: McKinsey LP Survey, January 2025 (n = 333)

McKinsey & Company

3
Distributed to paid-in capital is a measure of the total capital returned by a private equity fund to its investors up to a certain
time—using the ratio of cumulative distributions to the total capital paid into the fund.
4
Multiple on invested capital is a measure of the total value of the investment relative to the initial capital invested.

74 Braced for shifting weather

However, getting an exit right in the current market environment is no easy feat. A number of
stalled exits in 2024 have added to growing pressure on GPs. This trend is not specific to PE;
some corporate spin-offs also experienced stalled processes.

One factor looms large in explaining these exit challenges: a mismatch between buyer and seller
price expectations. We can analyze this mismatch by evaluating how the valuations of maturing
assets (for example, those held for more than four years) on sponsors’ books—typically termed as
“marks”—compare with market-clearing prices as multiples of EBITDA for sponsor-owned
companies in the same sector. In 2024, the marks of maturing assets were 17 percent above market-
clearing prices, according to Hamilton Lane (Exhibit 2). In comparison, the marks of maturing
assets were only 4 percent and 3 percent above clearing prices in 2020 and 2018, respectively.
Moreover, all PE subsectors tracked by Hamilton Lane showed uniform consistency in elevated
marks in 2024, unlike in 2020 or 2018, when marks were elevated in select sectors.
Web <2025>
<Global Private Markets Review 2025—Deep dive: Getting exits right>
Exhibit <2> of <2>

Exhibit 2

Near-maturity assets are increasingly held at valuations higher than

the prevailing market price.
Maturing assets (held for 4+ years) holding valuations as a percentage of
prevailing market purchase prices, %

Holding valuations less Holding valuations greater 100% = Marks of maturing assets
than purchase prices than purchase prices at market clearing prices

20181 20202 20223 20244

All buyout
103 104 90 117
deals

Consumer
138 114 98 129
discretionary

Consumer
84 110 106 119
staples

Financials 93 98 78 105

Healthcare 106 110 92 104

Industrials 110 106 91 120

Technology 108 96 84 126

Materials 101 89 90 122

100 100 100 100

1
Unrealized buyout deals (holding valuation of assets from 2013 and 2014 vintages; purchase price multiples at acquisition for assets in 2017 and 2018 vintages).
Data as of Dec 31, 2018.
2
Unrealized buyout deals (holding valuation of assets from 2015 and 2016 vintages; purchase price multiples at acquisition for assets in 2019 and 2020 vintages).
Data as of Dec 31, 2020.
3
Unrealized buyout deals (holding valuation of assets from 2017 and 2018 vintages; purchase price multiples at acquisition for assets in 2021 and 2022 vintages).
Data as of Dec 31, 2022.
4
Unrealized buyout deals (holding valuation of assets from 2019 and 2020 vintages; purchase price multiples at acquisition for assets in 2023 and 2024 vintages).
Data as of June 30, 2024.
Source: Hamilton Lane

McKinsey & Company

Braced for shifting weather 75

 Within PE subsectors, consumer discretionary and technology assets showed the highest
pricing mismatches, with average holding valuations as a percentage of market purchase prices
at 129 percent and 126 percent, respectively. Even sectors with the lowest dislocations, such
as healthcare and financials, were above the prevailing market prices in 2024, at 104 percent and
105, respectively.

We have also observed that many PE assets traded in recent years are typically the highest-
quality assets that satisfy most of a prospective buyer’s ideal investment criteria. It is against this
baseline that the elevated marks are measured. Put another way, the quality bar for marketable
assets has gone up, and relatively few assets meet this bar.

Selling assets appears to be especially difficult for large sponsors, as they tend to buy bigger
companies with more constrained exit options. Indeed, the bigger the company, the fewer sponsors
or corporates that can purchase it (though IPOs are also an exit option for larger assets).

Preparing for an exit

A tough environment for selling companies has made exit preparation even more vital. Drawing
on our work with investors and previous McKinsey research, we have developed a playbook
that GPs can use to optimize their exit preparations. The approaches vary principally based on
the stage of the asset life cycle and the likely exit pathways.

Stage of the asset life cycle

Leading GPs start thinking about the exit even before acquiring an asset. In our view, the best
exit preparation is built into every stage of the investment life cycle, including the diligence
process, the holding period, and the divestment stage.

Diligence process. When assessing an asset’s quality during the diligence process, GPs could
include evaluating the quality and feasibility of the exit. As such, GPs need to consider the exit
potential for a target asset, including the likely market for the asset after a typical holding period
and the most appropriate exit channel. Depending on the anticipated exit route, GPs can tailor
their value creation efforts to tell a story that best suits that exit route.

Holding period. As owners turn their focus to value creation, the likely exit pathways can play
a role in determining what gets prioritized. For example, some value creation initiatives may need
to begin earlier than others to give the next owner confidence in underwriting these initiatives.
Market expansion levers, for instance, may take longer to realize compared with cost-cutting
levers. Early in the holding period, dealmakers and operators may need to think about the
sequencing of value creation initiatives to prepare for the best exit.

There are two distinct value creation plan (VCP) opportunities for an asset. First is the postclose
VCP, which focuses on translating the investment thesis into a practical plan. This involves building
a rigorous momentum case for the business, comprehensively assessing the full potential, and
then developing a robust execution plan to close the gap between momentum and full potential.

The second is the midcycle VCP, which is emerging as best practice in PE. A midcycle VCP can
unlock a second S-curve of performance improvement after the impact of the postclose VCP has
plateaued and the focus of dealmakers and operators has shifted to new assets. This midcycle

76 Braced for shifting weather

plan could focus on improving performance across two to three actionable, high-impact levers.
The choice of levers is critical; there needs to be enough time to show at least the green shoots
of impact, and they should be chosen to align with what the next owner values, be that a strategic
buyer, another sponsor, or the public markets. These midcycle VCPs are most often successful
when run alongside a midcycle re-underwrite. In a midcycle re-underwrite, the sponsor can refresh
its view on market evolution and incorporate fresh perspectives into the VCP.

At exit. GPs can prepare an equity story that reflects all the value creation efforts done to
improve the asset’s performance. For example, they can not only highlight the asset’s
performance and any changes it has undergone during the holding period but also show the
groundwork laid for the next one to two horizons of value creation. This may boost the
confidence of potential owners, who are likely considering their own potential exit paths, that
the next exit can also be successful.

Likely exit pathway

PE GPs can determine the likely buyer type based on the characteristics of the asset. For
example, larger assets could be better suited for public flotation than smaller ones, as the bigger
the company, the fewer the sponsors or companies able to purchase it. Indeed, IPOs accounted
for 22 percent of global PE-backed exits for assets valued at or above $500 million in 2024,
compared with 10 percent for smaller exits (below $500 million).

Next, we explain potential approaches for the three most common exit channels in PE.

Strategic or corporate buyer. Early on, GPs can determine potential strategic buyers for an
asset—a short list of companies in a specific industry that are capable of transacting within a given
deal size range and where synergies are clear. By doing so, GPs can focus their value creation
efforts and investment on the products or business units within a portfolio company that would be
the best strategic fit for potential strategic buyers. For example, they could invest in business
units with the highest expected synergies or those in the most complementary geographies.

Sponsor-to-sponsor exits. GPs should consider how they communicate the uncaptured value
creation potential of an asset. This is especially important because GP buyers, in particular, need
to confidently underwrite profitable growth in the asset during a typical holding period.

The universe of potential GP buyers, as well as the playbook for achieving growth, is likely to be
different at each stage of an asset’s growth journey. For example, a lower-middle-market asset
may be better placed to grow via a buy-and-build strategy than a large-cap asset. Thus, many
PE GPs anticipating a sale to another sponsor typically frame the asset’s story in a way that is
relevant to the growth playbook for an asset of a given size.

IPO exits. This exit pathway requires GPs to demonstrate a consistent track record of organic
growth for the asset. Additionally, given the greater coverage of an IPO, GPs would do well
to have a clear and simple equity story. To this end, some GPs might make strategic decisions
such as limiting expansion, focusing on a relatively short list of high-value priorities, or
divesting business units within the asset. They may also begin upskilling the senior team and
finance function so that the executives are fully equipped to meet the obligations of trading
as a public company.

Braced for shifting weather 77

 GPs also need to be flexible in how they plan their exit strategy. They should not make decisions
that may preclude assets from unanticipated exit avenues that could provide greater value.

Exits are top of mind for many PE stakeholders, as the exit backlog has never been larger. While
LPs increasingly care about distributions, exits are hard to get right, especially with today’s
elevated marks. GPs that can master the exit playbook through all stages of the asset life cycle,
and position the asset for exit from the beginning, stand to reap the highest rewards.

Alexander Edlich is a senior partner in McKinsey’s New York office, where Laurens Seghers is a partner;
Ari Oxman is a partner in the Miami office; and Christopher Croke is a partner in the London office.

78 Braced for shifting weather

Secondaries and GP stakes:
The next wave of private
market innovation
Strategies for secondaries and GP stakes have become increasingly
popular liquidity channels for both managers and investors.

Braced for shifting weather 79

 In the private market industry, investors have historically allocated capital alongside GPs either
through commingled funds or co-invest structures. Such allocation approaches have delivered
healthy returns, surpassing public markets’ performance over the long term.1 However, the
traditional commingled-fund approach has limitations. For one, investors may find it difficult to
gain exposure to the trends that private market firms often capitalize on to generate economic
gains (unless they are a part of, or own, a private capital manager or invest in a publicly listed
manager). Second, private capital investments are almost always considered to be illiquid in
nature: LPs allocate capital to a fund, then potentially wait five years or longer for distributions,
with limited ability to obtain liquidity in the interim. It is also challenging for investors to remain
allocated to an investment beyond the fund’s maturity limit.

To resolve these challenges, two investment strategies have emerged in recent years:
secondaries and GP stakes.

Both GPs and LPs have embraced secondaries as a liquidity channel at a time when many managers
are sitting on a vast number of unsold assets due to a challenging exit environment. The second
strategy—wherein GPs can sell a stake in their entity to other investors—can also help GPs source
capital for strategic purposes. It also provides LPs with exposure to the long-term economics
of the private market industry (for example, management fees, fund performance, and growing
assets under management). Indeed, the performance of the GP stakes strategy, particularly
in 2012–21 vintage funds, outmatched even that of private equity (PE) (historically the best-
performing private market asset class), with more limited variability on average.

While interest in the two strategies has been flourishing, they remain niche approaches within
the private market universe. In our view, they both have significant potential for deployment as
well as for sourcing additional capital.

Secondaries sustain upward momentum

Liquidity has been top of mind for private market stakeholders over the past few years, given
slowing exits and capital called by GPs exceeding distributions for most of this period, as we
highlight in our Global Private Markets Report 2025.2

Secondaries allow investors to access older vintage investments across strategies and managers
by typically purchasing at a discount to the net asset value (NAV) of the stake purchased.

LPs can fulfill their liquidity requirements by selling their stakes in the funds on the secondary
market before those funds have matured. Moreover, secondaries empower LPs to rebalance
their portfolios. For example, LPs can invest in diversified sets of private capital funds without
needing to allocate to each fund individually, which could expose them to a wider range of
vintages. LPs can also adjust their allocations when an investment is not performing well or
there is a change in their overall investment strategy.

1
For example, the ten-year period between the fourth quarter of 2014 and the third quarter of 2024, or the 25-year period
between the fourth quarter of 1999 and the third quarter of 2024, as mentioned in the article: “Global Private Markets Report
2025: Private equity emerging from the fog,” McKinsey, February 13, 2025.
2
As of the first half of 2024.

80 Braced for shifting weather

The secondaries market is beneficial for GPs too. It helps them retain control over a business that
they may not be ready to exit (for example, because they believe they are best positioned to
continue to drive value for that business). At the same time, it allows them to sell assets from their
funds through a GP-led secondaries transaction. They can do so by setting up a continuation
vehicle to hold an asset longer, especially if they believe there is significant value that can be
created from the asset with an extended holding period.

The growing appeal of the strategy is reflected in strong deal activity, fundraising, pricing, and
performance data, as we analyze in the following sections.

Deal activity
Total secondaries deal volume increased 45 percent year over year to $162 billion, making 2024
the highest year on record.

The uptick in deal activity was driven by LP-led secondaries, which rose 45 percent to $87 billion3
(Exhibit 1). Additionally, GP-led secondaries rose 44 percent to $75 billion. Nearly 84 percent of
GP-led deals were continuation vehicles.

Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <1> of <7>

Exhibit 1

Global secondaries transaction value increased by 45 percent in 2024.

Global secondaries transaction value, $ billion
162

132 +45%

108 112 87 LP-led value

88 64
74 56 60
60
62
50 25
68 75 GP-led value
52 52
26 35
24

2018 2019 2020 2021 2022 2023 2024

Source: Global secondary market review, Jefferies, Jan 2025

McKinsey & Company

3
Global secondary market review, Jefferies, January 2025.

Braced for shifting weather 81

 Fundraising
In addition to using the secondaries market to exit investments, GPs have increased their
fundraising efforts to buy more secondary stakes. Fundraising for secondaries totaled $65 billion,
making 2024 the third-highest year on record (Exhibit 2). In comparison, total secondaries
fundraising has averaged $71 billion annually over the past three years versus $52 billion on
average over the past ten years.

Fundraising for secondaries remains concentrated—the top ten GPs have accounted for
an average of 60 percent of aggregate fundraising over the past decade. Yet, we see a gradual
increase in fundraising by managers outside the top ten; such managers raised around
$32 billion on average in the past three years, which accounted for 45 percent of total secondaries
capital raised during the period. This is significantly higher than the $21 billion they raised on
average annually over the past decade.

Pricing
Secondary transactions typically trade at a discount to the NAV of the assets or the stake being
sold to obtain liquidity faster. However, shopping for bargains is not all that matters. In the
McKinsey LP survey, respondents ranked the discount to NAV, the track record and reputation of
the GP, and the potential value creation in the remaining portfolio companies as the top three
assessment criteria for potential secondaries investments.
Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <2> of <7>

Exhibit 2

Secondaries fundraising reached its third-highest fundraising peak in 2024.

Global secondaries fundraising, $ billion1 Remaining secondaries managers
Top 10 secondaries managers

104

92
31
19 –37%

65

48
43 44 32
35 36 16 33 73 73
25 27 26 26
22 15 15 33
5 21
17 12 12
13 7 32 34
7 5 22
20 21 17
10 15 13 13 13 11
8
2010 2012 2014 2016 2018 2020 2022 2024

Note: Figures may not sum to total, because of rounding.

1
Top managers are defined by highest aggregate fundraising in secondaries since 2010. Includes private equity, real estate, and infrastructure secondaries.
Source: Preqin

McKinsey & Company

82 Braced for shifting weather

Secondaries pricing as a percentage of NAV across all private market asset classes rose in
2024 to 89 percent, up from 85 percent in 2023 (Exhibit 3).4 Buyout secondaries traded at
the highest percentage of NAV at 94 percent. Private debt secondaries pricing rose the most,
from 77 percent of NAV in 2023 to 91 percent of NAV in 2024. Meanwhile, real estate
secondaries traded at the lowest percentage of NAV in 2024 at 72 percent, nearly in line with
its trading value of 71 percent of NAV in 2022 and 2023.

This general upward movement in pricing (reflected in the narrowing spread) will likely catalyze
further transactions, as LPs recognize that they can exit positions in the secondaries market
while keeping a greater share of book value.

Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <3> of <7>

Exhibit 3

Secondaries pricing increased across asset classes in 2024.

All Buyout Private debt Venture growth Real estate

LP portfolio pricing, % of net asset value

100
97
94
93
92
91
90 91
88 88
87
86 89
85
85 83
81
83
80 78
77
79
75
77 76
75 72
71
72
71
68 68

60
2019 2020 2021 2022 2023 2024

Source: Global secondary market review, Jefferies, Jan 2025

McKinsey & Company

4
Global secondary market review, Jefferies, January 2025.

Braced for shifting weather 83

 Performance
While secondaries provide a liquidity alternative for GPs and LPs, they also function as an
attractive risk-adjusted investment strategy. Secondaries funds are popular investments, partly
because they provide diversification across vintages, strategies, and managers. And as the
strategy matures, its performance is also improving. Returns of secondaries funds have been
higher than those of PE on average over the past three vintages (Exhibit 4).

It helps that secondaries funds offer a hedge to the industry: During bear years, the discount at
which you can make secondaries trades rises, which drives up returns; during stronger years, the
discount reduces, leading to fewer opportunities for multiple expansion.

Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <4> of <7>

Exhibit 4

Secondaries have outperformed private equity in recent vintages,

showing a correlation between the pricing of secondary stakes and the
fund’s performance.
Private equity and secondaries performance, by vintage, IRR % Private equity
Secondaries
20
19 19
18
17 16 16
14 15
13
12

2016 2017 2018 2019 2020 2021

Estimated pricing of secondary stakes during investment period, % of net asset value1
100

92 91 89 89 87 86

0
2016 2017 2018 2019 2020 2021
1
Calculated as the weighted average discount to net asset value during the average investment period for a given vintage.
Source: Global secondary market review, Jefferies, Jan 2025; MSCI Private Capital Solutions

McKinsey & Company

84 Braced for shifting weather

When compared with other private capital asset classes, secondaries funds also posted the
highest median return, while having the third-lowest return dispersion (Exhibit 5). Additionally,
the median return for secondaries is more than five percentage points higher than for the two
asset classes (private debt and infrastructure) that have lower return dispersions, indicating a
strong relative risk/return profile for secondaries funds.

Secondaries funds also offer a stronger liquidity profile than most other private capital funds. For
vintages from 2000 through 2021, for example, net cash flow for the median secondaries fund
turns positive in year eight, matched only by private debt. In comparison, median funds for other
private capital asset classes do not reach positive net cash flow until year ten.

GP stakes: A nascent but growing strategy

GP stakes funds allow investors to access the business of private markets, as opposed to merely
investing with private market firms.

In fact, many LPs are increasingly looking to buy GPs through a GP stakes investment. Such
investments typically involve acquiring minority equity stakes, but in rare cases, buyers can
acquire controlling stakes in GPs as well.

Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <5> of <7>

Exhibit 5

Secondaries funds exhibit a higher median return than all other private-
capital asset classes.
Performance, by asset class, median IRR and percentile spreads for 2012–21 vintage funds, %1

Top 25% Median Bottom 25%

Secondaries Private equity Infrastructure Private debt Real estate

20.2
19.3

8.5
14.8
15.1
12.7 13.0 12.5
11.6
10.8 7.5 4.7
9.3 8.7
7.8 11.5
6.9
5.1 5.5

1.0

IRR spreads calculated for separate vintage years for 2012–21 and then averaged out. Median IRR calculated by taking the average of the median IRR for funds
1

within each vintage year. Net IRR to date through Sept 30, 2024.
Source: MSCI Private Capital Solutions

McKinsey & Company

Braced for shifting weather 85

 By selling stakes in their entity, a GP can secure capital for strategic uses, such as investing
in infrastructure for scaling the business or building new products. The entity investing in GP
stakes can also serve as a strategic partner that provides the staked firm with distinct
perspectives and capabilities. In some cases, it can even assist with succession planning
at the GP.

For LPs, investing in GP stakes can open new investment opportunities, particularly given the
significant tailwinds that are powering growth in the private capital industry (such as the
continually increasing allocation targets of LPs, increased retail investor access to the industry,
and proven long-term performance). In the McKinsey LP survey, 43 percent of the respondents
said they invest in GP stakes funds, with more than half of this group expressing interest in directly
investing in GPs. In particular, 70 percent of the sovereign wealth funds that participated in the
survey expressed interest in directly acquiring stakes in a GP.

LPs have cited many reasons for their increasing interest in this strategy. Investing in GP stakes
could offer an attractive risk/return profile, with the downside risk limited by the resilient nature
of GPs (see section on GP stakes performance). LPs also express confidence in the overall
organic growth of private markets and want to capture this growth via direct exposure to GP
economics. And, last but not least, they see a proven track record from existing GP stakes funds.
This interest is manifested in the strategy’s robust fundraising volumes in 2024, driven largely
by its consistent performance over the years.

For LPs, investing in GP stakes can

open new investment opportunities,
particularly given the significant
tailwinds that are powering growth
in the private capital industry.

86 Braced for shifting weather

Fundraising
GP stakes remain a nascent part of overall private market fundraising. In 2024, fundraising for
the strategy reached $4.4 billion, a significant increase compared with the prior year’s
$600 million raised but well below the $31 billion raised in 2022 (Exhibit 6). Notably, the vast
majority of 2022’s fundraising total had come from three flagship GP stakes funds.

At the same time, the number of GP stakes funds being raised reached its highest number ever in
2024, with 11 fund closings. As with secondaries, the market for GP stakes funds is still shallow,
and fundraising is dependent on the timing of the largest fundraisers. But the pace of fundraising
has accelerated. In the past three years, for example, an average of $12 billion per year was
raised across an average of nearly seven funds annually. In comparison, $6.7 billion across an
average of 4.6 funds per year was raised over the prior five-year period.

Performance
The performance of GP stakes funds—in terms of both absolute returns and the relatively low
level of dispersion between funds—is a key factor driving the growing interest.5 For the
2012–21 vintage funds, the median performance of GP stakes funds is consistent with buyouts
(historically, the highest-returning PE strategy). But the difference between the top and
bottom quartiles is far more modest (IRR of 7.9 for GP stakes funds, compared with 13.1 for
buyout funds) (Exhibit 7).

Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <6> of <7>

Exhibit 6

Fund timing plays an important role in fundraising for general partner stakes.
Global GP stakes fundraising, $ billion

31.1

9.9
7.8 8.0 7.1
6.7 6.2
3.0 0.6 4.4
2.2
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Number
of funds 3 4 3 4 2 3 1
6 8 8
11

Source: Preqin

McKinsey & Company

5
Based on a sample of 26 GP stakes funds from Preqin.

Braced for shifting weather 87

 Web <2025>
<Global Private Markets Review 2025—Deep dive: GP stakes and secondaries>
Exhibit <7> of <7>

Exhibit 7

General partner stakes funds exhibit a lower return dispersion and similar
median returns compared with buyout funds.
Performance, by private equity strategy, median IRR and percentile spreads for 2012–21 vintage funds,1 %

Top 25% Median Bottom 25%

GP stakes Buyout Venture capital Growth equity

23.3
20.9

7.9 13.1
16.8 17.5
16.3
13.7
13.0
15.6
10.2
9.4 9.0 11.3

1.9 2.4

1
IRR spreads calculated for funds for separate vintage years from 2012-21 and then averaged out. Median IRR calculated by taking the average of the median IRR
for funds within each vintage year. Net IRR to date through Sept 30, 2024.
Source: MSCI Private Capital Solutions; Preqin

McKinsey & Company

Investing in secondaries and GP stakes presents new opportunities for LPs and GPs to engage in
dynamic portfolio construction, while also expanding their private market exposure. To do this well,
these investors may need to build new capabilities. For example, they would need to engage in
effective due diligence of the manager, including appropriate valuation, and estimate the long-term
strategic positioning of managers. GPs would need to build a data strategy to rapidly benchmark
manager performance, measure attribution and repeatability of performance-driving mechanisms,
and create sourcing strategies to identify and approach emerging GPs. Additionally, many GPs
may need to embrace the idea of partnership with other managers through GP stakes transactions
to gain knowledge and capabilities from new investment partners.

Alexander Edlich is a senior partner in McKinsey’s New York office; Christopher Croke is a partner in the London
office; Paul Maia is a partner in the Washington, DC, office; and Rahel Schneider is an associate partner in the
Bay Area office.

88 Braced for shifting weather

Authors

McKinsey’s Private Capital Practice

To learn more about McKinsey’s specialized expertise and capabilities related to private markets and institutional investing,
or for additional information about this report, please contact a member of the team:

Lead authors Contributing authors

Alexander Edlich Aditya Sanghvi Joseba Eceiza

Senior partner, New York Senior partner, New York Senior partner, Madrid
[email protected] [email protected] [email protected]

Christopher Croke Alastair Green Paul Maia

Partner, London Senior partner, Washington, DC Partner, New Jersey
[email protected] [email protected] [email protected]

Fredrik Dahlqvist Connor Mangan Rahel Schneider

Senior partner, Stockholm Partner, New York Associate partner, San Francisco
[email protected] [email protected] [email protected]

Warren Teichner Hyder Kazimi Tripp Norton

Senior partner, New York Senior partner, Houston Associate partner, Atlanta
[email protected] [email protected] [email protected]

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Braced for shifting weather 89

 Acknowledgments

Contributors Editorial production

Alastair Rami, Alex Wolkomir, Aly Jeddy, Andrew L Dan Spector, Heather Byer, LaShon Malone, Julie
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Research and analysis
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