Q3 2025 Pulse Check: Private Markets Investment Themes

Direct Credit Investing

Access to the private credit market, emphasizing current yield with an aim toward downside protection

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• Deal activity: We had another record-setting year for direct credit deal activity in 2024, reviewing $16.6B in opportunities. This trend continued into 2025 with deal flow increasing 51% YoY through June 2025. 
• Funding gap: Significant tailwinds remain for private credit even if LBO volumes stay muted. As of Q4 2024, there was a $1T funding gap between the amount of buyout dry powder that was raised and the amount of credit capital available to support that buyout dry powder. When we marry that figure with the maturity wall data, we estimate there is comfortably more than $2T dollars of market opportunity over the next few years, which the banks will not satisfy. 
• Market environment: Looking ahead, M&A and LBO volumes may slow based on market uncertainty. However, credit has strong deal flow drivers that should create continued deal momentum in areas like incremental facilities, refinancings and an approaching large maturity wall.  
• Capital solutions: We expect there to be demand for opportunistic capital solutions in structures like HoldCo notes and preferred equity where a maturity wall may demand financing solutions that offer attractive risk/return characteristics such as low LTVs and the potential for equity-like returns. 
• Market position: During times of uncertainty, there have historically been flights to quality, with private credit offering both yield and downside protection. Our credit platform is well positioned to lean into attractive opportunities as the market environment evolves.  

Direct Equity Investing

Globally diversified platform targeting the SMID market with unique positioning

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• Deal-making: During 2024, global M&A deal value and count rose compared to the prior year; however, this deal-making activity, along with exit activity, was still well below 2021 highs. While the growth from 2024 carried into Q1 2025, current market uncertainty and the escalation of trade tensions have created a more complex investment environment. This may result in 2025 not experiencing the same rise in activity as in 2024. 
• Fundraising: PE fundraising dropped again in 2024 (and has continued to slow down in 2025). Despite broader fundraising being down, HL’s 2024 DE deal flow significantly outpaced prior year volumes and 2025 is on pace to be another record year.  1H 2025 deal flow on our DE platform is up ~10% YoY. The challenging fundraising environment and higher-for-longer interest rate environment has emphasized the need for GPs to partner with strategic co-investment / direct equity investors with an efficient process and scale.  

• Deal volume: While deal volume broadly may slow, we believe there will still be a steady rate of high-quality deals transacted for the foreseeable future. As of the end of 2024, almost 70% of buyout deals had been held for over five years.

• Market position: Our direct equity platform continues to be well positioned. Amidst the uncertainty, we continue to focus on middle-market companies with enterprise values between $500M and $1.5B, companies operating within a specific country or region and resilient services businesses with stable industry dynamics. 

Emerging Managers

Early access and introductions to best-in-class emerging and diverse-led managers across primary funds and co-investment transactions

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• Exit push:  Many of the emerging managers’ funds that raised in the 2021-2022 timeframe are now seeking to return to market. In the current environment, achieving one or more successful exits has become an important factor for managers aiming to generate LP re-up interest. HL has observed that demonstrating realized track records is increasingly viewed as a key element in engaging existing and prospective investors.
• Fundraising: Expectations for a strong distribution year have been further postponed, creating continued headwinds for the fundraising environment—particularly for emerging managers. Many recent fundraises are not reaching their targets, and emerging GPs are encountering capacity constraints as a result. This dynamic highlights the growing challenges for newer managers in the current market, where access to capital has become increasingly competitive.
• Co-investment: Most co-investment opportunities recently presented have been in diversified business services companies with limited exposure to tariff risk. In comparison, opportunities involving direct-to-consumer businesses are also being seen, though to a lesser extent. However, these remain more sensitive to ongoing inflationary pressures and broader macroeconomic conditions, which may continue to have an impact through the remainder of 2025.
• Optionality: A notable advantage for emerging GPs is the increasing breadth of options available for securing seeding and anchor capital. This trend has become particularly pronounced, with both established firms and a growing number of new entrants actively seeking to partner with emerging managers. In addition to these dedicated seeding platforms, pensions and family offices are also engaging more directly, offering a range of capital sources, partnership structures and strategic support. As the landscape evolves, emerging GPs continue to navigate an expanding array of avenues to access early-stage backing and differentiated resources.  

Primary Fund Investing

High-quality primary fund investments with often hard-to-access general partners

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• Investment quality: High-quality assets continue to trade while a general malaise on the deal flow front remains; however, some GPs have noted stronger pipelines as uncertainty wanes. Funds that have been dormant for a year or two after raising are starting to come off the sidelines as buyers and sellers get used to the noisy backdrop. 
• Macro uncertainty: GPs continue to accept the new normal of uncertainty; tariffs are on and then off and then on again, with the primary focus being on sustainable businesses no matter what is happening in the broader environment. 
• Equity: Equity GPs who are fundraising, while expecting a tough 2025, may find less competition than anticipated as managers push fundraising efforts to later in 2025 and into 2026. This trend has continued as closed deals have continued to be rare over the last couple of months.  
• Credit: Credit fundraising and deployment continues to remain robust; however, these managers are also waiting for an increased flow in M&A. In the meantime, spreads above SOFR have compressed as competition is stiff for the transactions that are occurring.  

Impact Investing

Seeking to deliver attractive returns while generating meaningful and measurable impact

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• Deal flow: Direct impact deal flow continues to thrive, with 2024 setting a new record for both number of deals (173) and total opportunity size ($6.6B). The Impact team’s deal flow sourcing engine is working well, with continued growth of inbound deals both from sponsors and businesses as well as advisors directly. 
• Sourcing: We are focused on continuing to expand deal flow sourcing in 2025, with proactive outreach to GPs in the U.S. and globally. 
• Tariff risks: Our impact portfolios are largely insulated from increased tariff risks due to their typical focus on regional businesses with minimized cross-border revenue exposure. Software-service and domestic-manufacturing oriented renewable energy businesses remain attractive investment areas within the environmental theme. Service businesses are also a focus within social impact portfolios because of their tariff risk resilience. 
• U.S. policy: Market participants are monitoring potential changes to the IRA, evaluating whether adjustments are needed to renewable resource business underwriting to factor in changes by the U.S. administration. 
• Energy demand: There is massive demand for new energy installations to support the growing power demand fueled by AI and its reliance on data centers. The U.S. administration continues to advocate continued AI investment growth. Industry experts say that there is not enough energy supply in the near term to service data centers, which will increase demand and the need for businesses to improve grid stability.   

Infrastructure & Real Assets Investing

Access to primary, secondary and direct investments across infrastructure and natural resources

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• Fundraising: Aggregate fundraising was strong in Q1 2025. ~$65 billion reached a final close from 21 funds, ~44% higher YoY. Larger managers dominate fundraising activity, with 90% of the total capital raised going to the top 10 funds. We expect this trend to continue through YE 2025 as several mega funds complete fundraising. Elongated fundraise timelines still show underlying weakness. The average time in market for an infrastructure fund as of Q1 2025 was ~30 months vs. ~23 months between 2020-2023. We have active relationships with essentially all of the mega-sized infrastructure managers and remain bullish on the middle market. 
• U.S. power: Data center and AI power demand, and a less-reliable grid in the U.S., are augmenting our deal flow. Natural gas power generation is now broadly considered an investable subsector again. Investors are scrutinizing renewable development platforms more and heavily discounting stated pipeline conversion goals, interconnection timelines and tax credits. "Behind-the-meter” platforms are gaining traction for institutional-level investment as more investment-grade customers face increased costs and less reliable power.  
• U.S. policy:  The One Big Beautiful Bill Act reduced long-term renewable energy tax credit visibility but avoided the worst-case outcome. Developers must “begin construction” by July 4, 2026, and make projects serviceable within four years of starting construction to receive full tax credit benefits. The widely accepted definition for “beginning of construction” has historically been either 1) performing physical work of a significant nature, onsite or offsite, or 2) paying or incurring 5% or more of the total cost of credit-eligible property/components. Since passing, an executive order requiring the Secretary of the Treasury / IRS to “ensure that policies concerning 'beginning of construction' are not circumvented” was issued, potentially altering the definition of “beginning of construction” for the IRS. Guidance must be issued by August 18, 2025. 
• Fiber assets: Fiber asset valuations appear to be improving. T-Mobile and AT&T have aggressively targeted the fiber-to-the-home space, and we anticipate further sector consolidation. Opportunities remain for experienced management teams with operational backgrounds.   
• Infrastructure secondaries: Infrastructure fund and asset secondaries continue to mature. While a billion-dollar infrastructure secondary transaction appeared challenging several years ago, a record $16 billion in infrastructure volume was realized in 2024. LPs continue to strategically use secondary markets, managing GP exposure and recycling old positions. The current macroeconomic environment is driving GP-led buyers to scrutinize entry valuations. 

Real Estate Investing

Seeking to deliver attractive, risk-adjusted returns across primary fund commitments and transactions within real estate

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• Fundamentals: As we reach the midpoint of 2025, the commercial real estate environment continues to adapt to economic uncertainties, shifting investor interests and evolving occupier needs; however, many fundamental indicators for the asset class remain positive. 
• Capital markets: After some pullback in early Q2 2025, both debt costs and availability have become more favorable. The lender landscape is expanding, giving borrowers increased choices and access to improved terms.  
• Property types: Investors are increasingly focused on alternative property types such as data centers, residential sub-segments beyond traditional multifamily and other niche sectors that benefit from demographic and technological changes. Two traditional sectors, office and retail, remain under pressure in certain areas, but have started to present value opportunities for sector specialists who can navigate idiosyncratic risks. 
• Investment positioning: For investors who understand how to underwrite and mitigate risk, real estate investments are well-positioned to provide attractive returns.  

Secondary Investing

A shorter duration complement to an overall private markets portfolio

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• Volatility: Although markets have been volatile this year, secondary portfolios which are highly diversified and middle-market focused are better suited to withstand the ups and downs. 
• LP interest: In a slow exit environment, we expect a continued lack of PE distributions. Portfolio rebalancing and commitment pacing are top of mind for investors, and political pressures have further motivated sales by certain types of institutions. LPs are seeking liquidity and deal flow has increased from already elevated levels with more directly negotiated transactions between buyers and sellers. While bid-ask spreads have widened for some funds, LPs have been willing to sell more of their higher-quality funds to minimize discounts, with buyers focusing on quality. Optical pricing hasn’t materially changed since April, but transactions at those pricing levels have changed. The activity in late 2024 / early 2025 represented a frothy market, especially at the higher end as some market participants were willing to pay for scale and buy less attractive funds at prices needed to consummate a transaction. There is less of this today with more mosaic-type solutions and less-broad portfolio sales as sellers prioritize pricing. 
• GP-led: Opportunities are robust in a challenged exit environment. Fundraising remains difficult and GPs value continuation vehicles to generate liquidity for their LPs. GPs are enhancing strategic relationships and, in turn, offering direct deal flow to secondary investors who have significant primary investment platforms. Hamilton Lane is capitalizing on high-quality GP-led deal flow due to our primary platform, established relationships with fund managers and information advantage. 
• Complex: In uncertain market periods, we typically see an uptick in structured transactions such as preferred equity solutions. In these situations, the GP favors liquidity, while the buyer benefits from a preferred return (and typically upside sharing) accompanied by downside protection from a cushion of equity being junior to the buyer’s security. GPs often prioritize working with firms like Hamilton Lane which have the scale and experience to execute highly customized, mutually beneficial structured transactions.  
• Selectivity: We have navigated periods of volatility in the past and, once again, are seeing very interesting secondary buying opportunities. Our deal flow in 1H 2025 alone nearly reached annual levels from preceding years. As such, we can be selective and lean into opportunities where our advantages allow us to purchase quality assets at attractive prices. 

Venture Capital & Growth Equity Investing

Seeking to access top-tier venture and growth equity companies through funds, secondaries and direct investments

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• New deals: Deal activity remained healthy during the second quarter, with some variability. While the number of new deals closed remained relatively steady, the startup capital funded dropped during the quarter. This was mainly due to a large cohort of mega fundraising rounds in AI companies that closed during the first quarter, driving outlier fundraising growth at the beginning of the year.  
• Artificial intelligence: The demand for AI companies continues to dominate the VC landscape with AI startups consuming over 60% of all U.S. VC funding during the first half of the year. While mega rounds for AI companies dropped off during the second quarter, the demand for foundational model companies remains strong with several new rounds in various stages of discussion.    
• GP fundraising: 2025 got off to a strong start for GP fundraising for both venture and growth funds. Funds that carried over the first quarter continued to raise into summer and are targeting end-of-year closes. Most of the activity remains weighted towards smaller, emerging funds and growth equity managers, which inherently have longer fundraise timelines.  
• Exit environment: Despite a few IPOs that took place during the quarter, the market for traditional exits remains slow and continues to push companies and holders towards alternative pathways to liquidity. This dynamic has put pressure on GPs who want to raise their next fund and LPs who need to achieve liquidity to make their next commitments. This need for liquidity has been favorable for sophisticated buyers in the VC secondaries space as GPs continue to look for creative ways to manufacture DPI and LPs look to rebalance their portfolios.