In financial markets, nothing is certain but change. This year, shifting government policies, corporate regulations, trade agreements and geopolitical tensions will likely impact markets and global growth.

Staying agile and informed will be key to navigating these market currents in 2025. For investors seeking potential returns in private markets, we see five key themes driving new opportunities:

• A persistent U.S. housing shortage is boosting real estate development.
• An energy bottleneck, sparked by the rise of artificial intelligence (AI), is spurring demand for new infrastructure investment.
• Interest rates are normalizing – though they remain elevated – against a backdrop of deregulation and sustained economic growth, setting the stage for more private equity dealmaking.
• Capital investment, which has been scant for years, is rising to support innovation.
• Normalizing rates may benefit private credit as well as private equity.

While investors need to remain aware of the risks associated with private markets – and gauge their potential impact on portfolios – there can be no doubt shifting market dynamics are reshaping investment opportunities.

Here, we take a closer look at each of these themes.

1. Shortages in the U.S. housing market create investment opportunities

The U.S. housing market made headlines in 2024 as ongoing shortages contributed to a supply-demand imbalance – so much so, the lack of affordable housing became a charged political issue.

Difficult as the situation is, the market dislocation is creating a structural opportunity for real estate investors globally. With an estimated shortage of 2 million to 3 million homes in the United States, the demand for housing far outstrips supply, and new real estate development is now a pressing social need. U.S. housing is more than just single-family homes, however: In addition to housing development, we are also focused on multifamily apartments, senior residential accommodation and workforce housing.

Other real estate subcategories are also garnering our attention. We have noted the beginnings of a valuation recovery in commercial real estate (CRE), which has struggled post-pandemic. In this sector, we are looking at areas experiencing meaningful growth: industrial and power-related real estate, specialized workspaces and net-lease investments – areas we expect to deliver strong performance over the coming 10 to 15 years.

2. The AI-driven energy bottleneck reflects unprecedented demand

Three catalysts are driving new energy infrastructure development: the reindustrialization of U.S. manufacturing, increased use of electrification in clean energy solutions, and the accelerating adoption of AI and digital infrastructure – especially data centers. These factors are driving an unprecedented surge in demand for power generation, and that demand is rapidly approaching an inflection point: Technological advancements are now, arguably, being held back because of a lack of large-scale physical infrastructure.

This infrastructure bottleneck is unprecedented: In the United States, demand growth for power is expected to increase by 5x–7x over the next three to five years.¹ This trend creates a structural opportunity for investors to engage in power generation and distribution projects. We expect traditional and renewable energy, nuclear and battery storage to attract significant capital investment, while data centers and communication networks may offer additional avenues for growth.

It's hard to understate the impact that AI will have on infrastructure spending in 2025: Data consumption and usage has already begun to spark a digital infrastructure boom. Data center development is growing by around 25% per year in the U.S. and by 15% to 35% annually in Asia, Europe and Latin America.² Looking ahead, we will be focused on investing in assets that underpin AI and digital infrastructure, such as power generation, transmission and storage, as well as data centers, cell towers and fiber optics.

3. Amid normalizing interest rates and deregulation, private equity dealmaking rebounds

For private equity investors, the combination of lower rates, deregulation and resilient growth are good news. When the Federal Reserve (Fed) made a rate cut in September 2024, it marked the first reduction in policy rates since 2019. Additional rate cuts this year still appear likely – albeit at a potentially slower pace – despite strong, ongoing U.S. growth.

Historically, lower interest rates correlate with increased dealmaking (mergers, acquisitions and exits) and higher asset valuations. Transactions typically pick up as the cost of financing comes down – and deal multiples rise – which is exactly what is happening now. Companies are becoming more acquisitive, and we’re seeing an uptick in capital market activity, including IPO volume, as shown below.

Easing regulatory constraints and the possibility of new corporate tax incentives expected of the new U.S. administration could further enhance earnings – and encourage companies to make more strategic acquisitions, the lifeblood of private equity. If the Fed continues to ease rates, the availability of lower-cost leverage should enable firms to structure deals more efficiently. As the year progresses, we expect to see transactions tick higher and exit volumes rise.

We expect these shifting market dynamics to favor large-cap and middle-market private equity managers capable of driving performance by making operational improvements and expanding balance-sheet margins. Creating operational value is a key skill – one that will dovetail with the need to scale innovation. With the accelerating adoption of AI, certain sectors, such as technology, industrials and financials, are clearly poised for growth.

Secondaries are no longer a sidelight

For investors, these trends will be a welcome change: In recent fund vintages, cash flows back to investors have been negative. In this environment, investors have sought alternative paths to liquidity – driving secondary transaction volumes to record levels.

Importantly, this volume isn’t happening merely because exits are low and cash flows are negative; it’s happening because the private equity industry itself is growing: A baseline percentage of the industry trades in the secondary market consistently, every year, and as the industry grows, secondary volumes are growing, too.³ In the past decade, 5%–8% of primary private equity commitments have traded in the secondary market annually, a figure that has ticked up to 9%–10% in the past two years.⁴

The secondary market – once seen merely as a way to generate portfolio liquidity during crisis – has clearly come into its own.

4. Poised for growth, capital investment supports innovation

Investing in growth equity and venture capital can offer a direct means of gaining exposure to the future of technology. We expect 2025 to be an exciting year as capital investment grows and investors pursue new opportunities to back innovation. A sampling of metrics help tell the story: Enterprise spending on AI is expected to compound at an annual growth rate of 84% over the next five years,⁵ while capital spending on automation by U.S. industrials will rise by 25% to 30% over the same period.⁶

Even better still, shifting market dynamics have swung in investors’ favor: This year, capital allocators stand to benefit from lower entry-point valuations and easing competitive pressures. As recently as late 2024, median growth equity valuations were down 63% and multiples on invested capital were down 50% from their 2021 peak, creating potential opportunities for investors to realize higher future returns.

Demand for capital remains strong. There are now a record number of so-called “unicorns,” privately held companies with market capitalizations of $1 billion or more, that will need additional financing over the next few years.⁷ In addition, the potential for startup-led innovation to transform industry has, arguably, never been greater. Looking ahead, we believe the stage is set for growth equity and venture-backed companies to create new tools that use AI, robotics and automation to drive greater efficiency – even in traditional industries, like defense, cybersecurity and consumer services.

5. Resetting interest rates may also benefit private credit

Although interest rates are easing, we expect them to settle at levels higher than those we’ve seen in recent business cycles. This environment presents challenges for companies that have heavy debt loads – but it also creates potentially compelling opportunities for private credit managers.

The percentage of companies that have defaulted or participated in distressed-debt exchanges is not particularly high, roughly 2%–3% of all companies.⁸ But the debt markets have grown so much over the past decade, the volume of distressed exchanges is now at a record level (see below). While we don’t expect to see a new corporate bankruptcy cycle start in 2025, many companies are currently experiencing debt stress.

Looking ahead, we’re particularly interested in potential opportunities in opportunistic and asset-backed credit, such as real estate and infrastructure debt, which can help diversify risks relative to corporate lending. To date, dedicated asset-backed fund offerings account for just $500 billion in a growing, $20 trillion market – by contrast, dedicated offerings in private credit account for $1.5 trillion in a market worth $3 trillion.⁹

We also continue to see opportunities in direct lending. Although investors need to be mindful of the potential for yields to decline slightly as policy rates adjust and spreads tighten, we expect direct lending yields to remain extremely attractive versus more liquid credit and high-yield alternatives.

Conclusion: A new era of growth and innovation begins

In 2025, we expect to see these five key themes create new investment opportunities in private markets as economic growth strengthens in the United States – but investors need to stay nimble. Risk is never far away.

By carefully gauging risks and aligning opportunities with their portfolios, investors have a chance in 2025 to participate in a new era of growth and innovation. As always, due diligence and selectivity are paramount to choosing the right investment partners and opportunities.

We can help

Many investors decide to work with us for our rigorous due diligence process and extensive alternatives platform. Our in-house team performs detailed analysis and conducts on-site visits, examining managers’ business structure, operations, incentives and staffing.

As one of the largest alternatives platforms, we set out to continually bring a carefully curated set of high-conviction opportunities to help you realize your investment goals. If you’re interested in learning more about our alternative investment platform, the latest opportunities and how they may fit in your financial plan, speak with your J.P. Morgan advisor.