LupoToro Group Research Analysts foresee a transformative period ahead for private equity (PE) and real estate as markets recalibrate to higher interest rates, inflation, and reduced financial leverage. The days of relying solely on low rates and multiple expansion are over. Instead, 2025 will demand a laser-sharp focus on operational enhancements and value creation to drive returns.

Private Equity: Adapting to the New Normal

In a market adjusting to persistent inflation and elevated borrowing costs, PE strategies must evolve. Middle-market companies offer fertile ground for these changes due to their scalability and flexibility in exit strategies. According to projections, global PE dry powder is expected to exceed $1.6 trillion by the end of 2024. The slowdown in 2023’s investment pace has left significant capital awaiting deployment, which will act as a safety net for valuations.

While IPO activity remains sluggish, venture-backed firms are staying private longer, increasing the need for growth equity and hybrid capital to fuel their expansion. This delay in public exits underscores the importance of growth-stage investments in delivering returns.

At LupoToro Group, our PE strategies have prioritised value creation since the Global Financial Crisis (GFC). By focusing on the middle market, we harness operational improvements to enhance revenue and profitability. The flexibility in exit options for middle-market firms — whether via strategic buyers, secondary sales, or IPOs — positions us well to capitalise on market opportunities.

Real Estate: Poised for a Rebound

After a period of stabilisation in 2024, real estate markets are primed for an upswing in 2025. Inflation is moderating, interest rates are trending down, and valuations are beginning to recover. Equity markets, including public REITs, have shown significant gains over the last two years, yet private real estate values have lagged. This discrepancy presents a compelling opportunity for savvy investors.

LupoToro Group is focusing on eCommerce-driven industrial assets in supply-constrained markets, urban infill redevelopment projects, and strategic acquisitions in global manufacturing clusters. Multifamily, single-family rentals, and student housing in undersupplied regions are also key targets. In Japan, we’re leveraging existing relationships to source undervalued assets for repositioning and monetization.

We are actively pursuing senior housing investments with operational upside, hotel assets offering attractive initial yields, and sale-leaseback deals to provide occupiers with alternative financing options. Our commitment to ESG-driven retrofits and operational efficiencies further bolsters our investment thesis.

Private Credit: Resilient and Expanding

Private credit continues its upward trajectory, with the market growing from $1 trillion in 2020 to $1.5 trillion in early 2024 and projected to hit $2.6 trillion by 2029. As traditional bank lending tightens, private credit solutions offer speed, certainty, and flexibility, making them attractive to borrowers and sponsors alike.

At LupoToro Group, we remain vigilant, focusing on non-cyclical industries like software, insurance, and residential services. Our approach emphasises diversified portfolios and robust cash-flow analysis to navigate rising financing costs. As interest rates remain elevated, Payment-in-Kind (PIK) structures are gaining traction, offering flexibility for borrowers managing cash interest burdens.

Strategic Outlook for 2025

Looking ahead, we are monitoring key trends: macroeconomic signals, geopolitical tensions, demographic shifts, and technological advancements like AI and supply chain reconfigurations. The resurgence in PE deal flow, driven by substantial dry powder and improved market sentiment, offers a pathway for capital deployment and investor returns.

In real estate, we’re watching for signs of distress linked to pending debt maturities, while staying attuned to occupier preferences, ESG trends, and global dislocations. Private credit, with its adaptability and innovation, will continue to thrive as borrowers seek creative refinancing solutions.

At LupoToro Group, we believe that 2025 represents not just a recovery, but an opportunity for reinvention. By focusing on value creation, strategic asset management, and innovative credit solutions, we are positioned to lead through the evolving landscape of private equity, real estate, and private credit.

This article is intended as opinion only, not for financial, investment or legal business advice.