About this episode
As we approach the end of the year, sparks of life are emerging in private markets, fueling optimism for improved liquidity and a revitalized investment landscape.
Join Executive Director of Investment Research Andrew Korz and Research Associate Alan Flannigan as they examine private markets and the outlooks for private equity, private credit and commercial real estate in 2025.
Transcript excerpt
[00:00:04] Andrew Korz: Welcome to FireSide, a podcast from FS Investments. I’m Andrew Korz, Executive Director of Investment Research here at FS, and today we’re going to discuss private markets and the outlook for private equity, private credit and commercial real estate in 2025. Joining me for this discussion is my colleague, Alan Flanagan. Alan, welcome to the show. Good to have you.
[00:00:25] Alan Flannigan: Hey, great to be here, Andrew. Real buzz in these markets and exciting time to talk about them.
[00:00:29] Andrew Korz: For sure. No doubt about it. Excited for the discussion. I’d like to briefly plug the written version of our Outlook. It’s actually our inaugural private markets outlook from our research team here at FS and this is available on fsinvestments.com and we’ll link it in the show notes. I think Aaron, right, we can do that. It will be in the show notes.
So Alan, let me just level set some things here before we dive into the outlook. It’s been a really interesting four years, just to put it mildly. I think it’s important to briefly walk through what’s gone on over that period—in the rates market and how that’s impacted private markets, and where that leaves us today as we look toward 2025. So, if we go back to 2021, that was just a gangbusters year for market activity across markets.
If you recall, in the spring, we had the meme stock mania. We had a surge of IPOs, SPACs, you name it. People thought rates were going to be low forever. The economy was rebounding incredibly quickly after the dissemination of vaccines, and that fed into private markets as well, where you had deal activity surging in PE and in real estate.
You had valuations climbing ever higher and that was what I would call peak optimism in private markets. In 2022, I think inflation hit markets like a semitruck. Obviously, inflation started to accelerate. The Fed began to act at the end of Q1. They ended up raising rates by 425 basis points throughout the final nine months of that year.
I think of this as the year of shock and awe in markets. Nobody expected that level of tightening coming into the year. Public markets plunged. Everybody expected a recession, if you recall. And very quickly, private markets activity dried up. In PE, you had deal volume down more than 20% year on year. In real estate, it was closer to down 30%.
Fast forward to 2023, I think as a year of correction. Values across private markets were still too high for where rates had settled in. And until they adjusted, deals in these markets just were not going to get done. I think the saving grace was not only do we not have a recession, but the economy was actually remarkably strong.