Quick Market Update
2025 is shaping up to be a year of action. The question isn’t whether private markets will accelerate—it’s how fast. Investors are shifting from defense to offense, prioritizing quality assets, smart AI integration, and sustainable growth strategies over financial engineering. The stage is set for a resurgence in deal-making—but expect selectivity and discipline to define the winners.
AI is rewriting the playbook. Once a tech-sector phenomenon, AI is now driving real value creation in PE-backed companies, from optimizing supply chains to automating finance and operations. U.S. firms have pulled dramatically ahead in AI investment, rapidly accelerating its adoption in everything from logistics to healthcare.
Meanwhile, macro challenges persist. The U.S. deficit and debt levels loom large, trade tensions are far from resolved, and labor constraints remain a pain point. But private investors see opportunity—reshoring trends are fueling industrial real estate, policy shifts could ease deal-making, and valuations remain compelling versus public markets.
Rapidly Changing U.S. Polices
Impact on Private Markets
- Regulation: After years of antitrust scrutiny, regulatory oversight, and restrictive policies, a shift may be underway. The new administration is poised to ease regulations, potentially clearing the path for bigger deals and innovation – particularly in AI, healthcare, and tech. The U.S. has led private investment in AI, with $335 billion invested from 2013 to 2023 and could cement its dominance if regulatory incentives gain traction. Microsoft’s Activision Blizzard saga highlighted past antitrust hurdles, but future mergers may face fewer roadblocks. Banks may also see looser rules, unlocking more lending and fueling dealmaking.
- Labor & Immigration: Labor shortages and rising wages are straining businesses across sectors, with tighter border controls potentially exacerbating the issue and driving costs even higher. Renewed support for expanding H-1B visa programs provides companies with a crucial avenue to attract and retain skilled foreign talent, helping to ease labor market pressures.
- Tariffs: Trade tensions are shaking up supply chains, with tariff threats pushing companies to adapt. Companies like Apple are shifting production out of trade rival countries like China, fueling foreign investments in the U.S. Private businesses, which tend to have leaner structures and operational flexibility, are well-positioned to capitalize on any market disruptions.
- Taxes: Corporate taxes remain stable, giving businesses confidence to reinvest. Companies like Tesla and Ford are expanding U.S. production, leveraging tax incentives. For private markets, stable tax policy can support predictable cash flow, which strengthens deal-making.
Private Equity
New Playbooks Emerge
- Value Creation Evolution: Limited exits in 2024 meant relatively few companies came to market, driving fierce competition and pushing valuations higher. With borrowing costs still elevated, private equity firms are moving beyond financial engineering, focusing instead on operational excellence and sustainable growth. Take Apollo’s acquisition of PetSmart—where success wasn’t driven by cost-cutting but by expanding e-commerce and pet services to unlock long-term value. This shift in value creation seems to be more prevalent today, as firms rethink traditional strategies and prioritize deep operational enhancements, strategic technology investments, and top-tier talent to fuel innovation, expand revenue and margins, and build more resilient, high-performing businesses.
- AI-Driven Exceptionalism: Private equity firms are aggressively integrating artificial intelligence in various capacities to unlock better investment outcomes, particularly in more traditional businesses. From AI-powered predictive analytics optimizing supply chains to automated financial reporting and enhancing operational efficiency, PE-backed companies are rapidly modernizing. The shift is expected to help unlock value and scale businesses faster. The result is AI adoption no longer being confined to tech giants—local manufacturers, logistics firms, and healthcare providers are now leveraging AI to drive revenue growth and margin expansion, marking a fundamental shift in how PE firms create value.
Venture Capital
AI Dominates as Investors Become More Selective
- AI Steals the Spotlight: Artificial intelligence continued to capture both headlines and investor dollars. OpenAI’s ChatGPT became a member of most households. But the real winners weren’t just building flashy chatbots—they were solving tangible problems. Generative AI and its applications in healthcare, finance, and cybersecurity, accounted for a lion’s share of VC funding in 2024. Startups that can apply AI to real-world problems—like business automation software or AI-powered drug discovery—are thriving, while less differentiated ventures struggle to secure funding.
- Survival of the Fittest: With capital becoming more constrained, startups have had to adapt. Unprofitable companies that once burned cash to fuel growth are now cutting costs, seeking profitability, and extending their runway. Even high-profile unicorns like Stripe and Discord have delayed IPOs, focusing instead on strengthening their core businesses with little motivation to go public and endure the administrative and regulatory burden of doing so. Meanwhile, smaller startups face a tougher path—leading to increased consolidation as larger players scoop up struggling competitors.
Real Estate
Mixed Signs of Stabilization
- Supply Squeeze: Higher construction costs, supply chain disruptions, and elevated interest rates have slowed new developments across most sectors. This has created a supply-demand imbalance, with limited new inventory struggling to meet steady or growing demand—particularly in housing, industrial, and logistics spaces.
- On-Shoring Fuels Industrial Demand: The push to bring manufacturing back to the U.S., combined with the continued expansion of e-commerce, is driving demand for warehouses, distribution centers, and manufacturing facilities. Key logistics hubs like Dallas-Fort Worth, Atlanta, and the Inland Empire are experiencing heightened activity.
- Building the Digital Backbone: The AI boom is fueling unprecedented demand for data centers as companies race to support advanced computing. From Virginia to Phoenix, data centers are becoming essential assets which cannot be built fast enough, with the trend expected to remain strong as AI adoption and computing demand accelerates.
Contributors
Important Disclosures and Information
© 2025 The Finerty Team
All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Exposure to an asset class represented by an index may be available through investable instruments based on that index. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change.
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