Private Equity Continues to Lead the Alternatives Pack

On September 18, the Federal Reserve announced its first interest rate cut in over four years, following other central banks and providing a fresh shot of optimism for public and private market participants. However, despite long-awaited rate cuts, valuation gaps and persisting liquidity challenges are hindering a full private equity (PE) exit recovery. Although the impact of lower interest rates will take time to unfold, the positive psychological boost can’t be overlooked. As we look ahead to 2025, how are limited partner (LP) allocation plans taking shape as the pressure mounts on general partners (GPs) to offload long-held assets.

After years of aggressively tightening monetary policy, LPs are busy planning their allocations for the next 12 months. According to the just-published 2025 SS&C Intralinks LP Survey, produced in partnership with Private Equity Wire, PE is the most popular alternative asset class among global investors. Here are five key PE takeaways from the ninth annual report, which is now available to download.

1. Private credit dominates headlines, but PE leads returns

Despite challenges posed by a higher interest rate environment and a decline in dealmaking, PE was the top-performing alternative asset class for 38 percent of respondents from global endowments and foundations, insurance companies, sovereign wealth funds, fund of funds, family offices and wealth managers.

Private credit, which has expanded rapidly and dominated headlines since the pandemic, ranked second, with 24 percent of respondents identifying the asset class as their top performer. 

2. Where performance leads, allocations follow

Almost two-thirds (62 percent) of 171 surveyed investors plan to increase PE allocations in the next 12 months, despite falling valuations and longer holding periods in the sector.

“The public stock market returns in 2023 were very strong, obviously guided by the Magnificent Seven,” says Andrea Auerbach, global head of private investments at Cambridge Associates. “The fact private equity satisfaction highlighted in this survey remains strong is a positive.”

More than one-third (36 percent) of respondents planning to increase exposure to alternatives indicate they will do so by more than ten percent. As liquidity conditions gradually improve, PE will likely be the leading beneficiary, as 45 percent of LPs expect to be overweight to the asset class — more than any other strategy in the next 12 months. 

3. Valuations pose a major challenge 

Geopolitical uncertainty and valuations, which have been suppressed by the dealmaking slowdown and higher interest rates, emerged as the two biggest concerns for global investors in the survey. However, our survey shows cause for optimism around exit activity as the pressure mounts for GPs to address their backlog of long-held assets.

An overwhelming 78 percent of LPs expect deal activity to increase in 2025, with 15 percent anticipating a significant rise. 

“The current PE market shows some signs of M&A revitalization, with almost all PE GPs involved in some form of exit process across their portfolios, mainly driven by the sale of top performing assets to show liquidity to LPs,” says Carl Lomsdalen, a senior associate at Golding Capital Partners, which runs in-house PE strategies and invests in external private credit strategies. 

Buy-side firms are also seeing opportunities, despite lingering headwinds. “Valuations have come down, so you are getting better entry points,” says Alex Band, CIO at Partners Capital. “Fundamentally, there seems to be this opportunity to drive earnings growth in companies and get paid for doing that. That's the heart of the interest in the asset class.”  

4. No room for complacency in alternatives 

Sentiment towards the 60/40 portfolio of stocks and bonds, which ran high in recent decades, turned negative after monetary policies tightened 2022. But that does not mean it will be easy for alternatives to win a bigger place in LP portfolios. 

Indeed, satisfaction with returns in alternatives declined from last year, when alternatives appeared particularly attractive following historic selloffs in 2022 across public stock and bond markets. Going forward, PE and other alternatives must continue prioritizing strong risk-adjusted returns to attract investor capital. 

 5. Transparency and technology remain watchwords 

Compared to last year, this survey revealed a higher satisfaction rate among LPs regarding GP transparency. Two-fifths (39 percent) of LPs rated it as above average and another seven percent as excellent, up one percentage point from last year. 

While these survey responses indicate a positive trend, competition for LP capital is fierce. How can GPs deliver the portfolio insights and responsiveness LPs demand? Technology will be pivotal, particularly when it comes to aggregating data across private market investments. 

Among LPs not using portfolio monitoring platforms, there was strong interest in having a single tool to aggregate data across private markets investments. Eighty one percent of LP respondents said such a tool would be helpful.

Competing in a tight market 

The pandemic boom may be long gone, but LPs are becoming increasingly bullish with 78 percent expecting dealmaking activity to increase in the next 12 months. Softening monetary policy, strong PE performance, and new fund structures that balance liquidity and returns all justify their optimism.

Still, many GPs are finding it challenging to attract capital from LPs in a market led by megafunds and buyout funds. How can fund managers strengthen their positioning to secure capital commitments? For more exclusive insights into allocation plans and how GPs can meet demands for value creation and transparency, read the full report.