The Manager Selection team at SEB Asset Management published their annual Private Markets Report in early April, which explores the shifting momentum across private equity, credit, infrastructure, and real estate, as well as some more niche private assets. 

“Private markets have already navigated three distinct phases in 2025. Going into the year, sentiment across private markets was broadly positive – returns in 2024 were higher, and the latest data showed positive cash flows, something we hadn’t seen in several years,” says Alexandra Voss, Senior Manager Selector at SEB. “That was a significant shift and created expectations for increased deal-making and capital returns, which would in turn support better fundraising.” Then, she notes, tariff-related uncertainty in April reintroduced volatility especially in the macroeconomic outlook and increased the dispersion of possible market trajectories. “And since our report was published in April, we have now entered a new phase where uncertainty remains, but the worst of the fear has receded, revealing a few potential bright spots of opportunity.”

Tariff Uncertainty Clouds an Encouraging Start to 2025

In the private credit space, Voss agrees with the consensus that tariff uncertainty will slow private equity-sponsored deal activity, leading to more supply than demand for direct lending loans. However, in a more uncertain environment, she notes that private equity sponsors are likely to place greater emphasis on execution certainty. “While overall deal volume may decline, direct lending’s share of completed deals in upper middle market may actually increase,” she adds. This shift, according to Voss, could preserve spreads and maintain quality in the direct lending space. “While the hard data still shows compression, the most recent forward looking survey data shows expectations for slightly higher spreads and more protections in Q2 versus Q1, as well as an increase in deal volume.” 

“While overall deal volume may decline, direct lending’s share of completed deals in upper middle market may actually increase.”

Private equity deal-making has slowed notably in recent years. Higher interest rates, economic uncertainty, and tighter credit conditions have made transactions harder to finance and complete. At the same time, valuation gaps between buyers and sellers remain, leading to longer negotiations and more failed deals. Although the outlook heading into 2025 was generally positive, deal activity typically slows in periods of uncertainty – a dynamic amplified by the current U.S. administration’s tariff agenda.

Roughly 35 percent of private equity-backed companies in the U.S. have now been held for more than five years, increasing pressure to return capital to investors. But Alexandra Voss thinks the problem is bigger. “The 3-5 year holding period reflected a strategy similar to buying a fixer-upper house. The sponsor would identify a company that could benefit from improvements, both cosmetic and functional. Once the fixes are complete, the sponsor looks to sell it at a higher price.” It’s largely an operational play, she says, with value creation often coming from improving efficiency, cutting costs, honing market fit, and professionalizing management – factors that, along with access to cheap leverage, have historically driven strong returns. 

“But given the amount of capital raised for large cap private equity, it seems reasonable that the number of large fixer-uppers available has declined. You see this in the increase in secondary buyouts as exits, where one PE firm buys a company from another PE firm. This has become the most common form of exit for PE holdings in Europe and North America.” Instead, Voss thinks that one area that may stand out in 2025 is the middle market. “Smaller and middle market companies are typically less exposed to global supply chains, and valuations remain well below large-cap levels, yet less than 15 percent of buyout capital in 2024 went to funds under USD 1 billion, the lowest share on record.” This dynamic has left the middle market less crowded, creating a potentially favorable backdrop.

Evergreen Structures Gain Traction

Traditional private equity managers often feel pressure to return capital to investors so LPs can invest in their next fund vintage. However, the rise of evergreen and semi-liquid fund structures may be shifting this traditional dynamic, impacting how managers raise capital, make investments, value their portfolios, and distribute returns. Voss points to “push, pull, and [ELTIF] policy” as the driving forces behind the emergence of semi-liquid structures. 

“There have been lower levels of deal making, and that has real consequences for the traditional model,” says Voss. “This has pushed managers to look to new ways to attract capital.” On the pull side, these structures offer under-allocated investors access that better fits operational needs. “While these structures come with important considerations, they solve a problem for many investors,” Voss says.

“While these structures come with important considerations, they solve a problem for many investors.”

When first encountering semi-liquid structures in illiquid markets like private equity or private credit, Voss was skeptical. “I have always invested on behalf of institutions putting hundreds of millions of euros to work, and it’s a very intellectually rigorous way of investing,” she recalls. However, she soon recognized a practical reality: “If you’re investing in private debt, for example, and want to maintain a strategic allocation, you need to create an allocation program and be making new investments continuously to sustain that level.” Each vintage entails managing an average of 80 independent cash events – capital calls and distributions – requiring substantial infrastructure and effort. “For many managers and investors, that’s a significant amount of work and results in under-allocation for non-investment reasons.”

Private Debt Emerges as Natural Fit for Semi-Liquid Fund Formats

Thus, with the growth of structures like ELTIFs (European Long-Term Investment Funds), Voss sees a clear push and pull dynamic between the careful, traditional way institutions invest and the need for more practical, flexible solutions to manage ongoing investments. Yet, she stresses that evergreen structures won’t suit all private market segments equally. “Based on data, growth of evergreen funds won’t be evenly spread across private markets,” she explains. “I don’t expect many evergreen venture capital funds because of their wide return variability.” Instead, Voss sees the strongest potential for evergreen growth in private debt, a natural fit given its steady cash flow, more predictable liquidity, and narrower valuation ranges.

“Based on data, growth of evergreen funds won’t be evenly spread across private markets. I don’t expect many evergreen venture capital funds because of their wide return variability.”

Evergreen structures can be applied to other asset classes across private markets, but doing so demands a thorough understanding of each asset’s valuation range and outcome distribution. “This is why I don’t expect venture capital to gain much traction in this space –the range of outcomes there is extremely wide,” Voss explains. 

From an investor’s perspective, achieving a strategic allocation to private debt or private equity typically involves managing multiple vintages individually or opting for an evergreen fund that provides built-in vintage diversification – an outcome otherwise difficult to attain. “Operationally, it’s much simpler. You get valuations and returns more comparable to your other liquid investments, along with the flexibility to adjust your allocation,” she says, cautioning that “this isn’t a product to trade in and out of quickly. It’s designed to make a strategic portfolio allocation more accessible.”

This article features in the “2025 Private Markets” publication.