2025 stands at a crossroads. In the prior year, nearly half of the world’s population across more than 70 countries participated in national elections, artificial intelligence gained considerable traction in the marketplace, and several central banks initiated a synchronized interest rate-cutting cycle. Each of these developments alone creates a complex landscape for investors to navigate. Yet, the situation is further complicated by heightened geopolitical risks and an investment environment brimming with uncertainties. Will the impressive performance of US equities continue? Can private equity and venture capital achieve better results? What does the future hold for credit markets? In the following pages, we answer these questions and many others across all asset classes as we present our 2025 Outlook.
AN OVERVIEW OF OUR 2025 VIEWS
CROSS ASSET
We expect global equities to outperform bonds, as near trend economic growth should support continued corporate earnings growth and healthy risk appetite. Stock/bond correlations should be lower than the 2023–24 peak levels, even as protectionist US policy may drive global economic uncertainty higher.
INTEREST RATES
We expect most major central banks to continue cutting policy rates, which should allow bonds to outperform cash. With breakeven inflation rates likely to be range bound, returns of inflation-linked and nominal bonds should be similar.
PUBLIC EQUITIES
We expect developed markets (DM) value and small-cap equities to outperform, given our economic views and their steep valuation discounts. Regionally, we believe US equity performance will not match the level set in 2024, allowing European, Japanese, and emerging markets (EM) equities to perform more in line with broader developed markets. Within emerging markets, strong Indian equity gains should moderate, while we doubt Chinese equities will collapse. At the same time, we expect long/short equity strategies will perform better than typical.
PRIVATE EQUITY & VENTURE CAPITAL
We expect private investment performance to improve, as the impact from overinvestment in 2021–22 recedes. The asset class’s long-term performance should continue to attract individual investors and managers are creating pathways for them to more easily access opportunities. While M&A and IPO exit opportunities may improve, we believe the importance of continuation vehicles as an exit path will grow. In Asia, we expect Japanese buyout and Chinese venture capital transaction activity to increase.
DIVERSE MANAGER & IMPACT INVESTING
We expect California Carbon Allowances (CCAs) to recover from 2024 losses as clarity on supply reductions emerges. Meanwhile, impact private investment flows will favor strategies with faster distributions and commercial validation. Additionally, headwinds for private diverse manager allocations should ease, but the overhang of emerging funds may lead to consolidation or shutdowns, challenging managers.
CREDIT MARKETS
We expect liquid credit returns to decline due to low credit spreads and anticipated Fed easing. Direct lending returns should moderate but continue to outperform their liquid counterparts. Meanwhile, insurance-linked securities will continue to benefit from strong demand, and increased transaction volumes should support both specialty finance and credit opportunities managers. In emerging markets, currencies should become a tailwind for local bonds.