Private Markets Quarterly Update: Q1 2025

In the first quarter of 2025, there were clear signs that private markets were regaining momentum following a relatively quiet stretch. Deal activity is increasing, particularly in private credit and direct lending, where floating-rate instruments remain popular among investors navigating the prolonged high-interest-rate environment.

One significant shift this quarter has been the clearer regulatory direction from the new U.S. administration. As the dust settled, dealmakers were gaining confidence, and we were beginning to see the initial signs of a rebound in M&A.

That said, the announcement of new U.S. tariffs has introduced an additional layer of complexity. While these measures are framed to protect domestic industries, they also generate ripple effects throughout supply chains and compel investors to reconsider where and how to allocate capital, particularly in manufacturing, infrastructure, and global logistics.

Global Picture - Regulation, Resilience, and Repositioning

In Europe, the CSRD rollout is arguably the most significant regulatory development in private markets this year. The expected reporting scale is prompting firms to rethink how they manage sustainability disclosure. We’re increasingly seeing these responsibilities shift from standalone sustainability teams into finance functions, helping ensure consistency across financial and non-financial reporting.

In the U.S., regulatory signals are more supportive of M&A, but the new tariffs are introducing a degree of caution in sectors with global exposure. Overall, the environment feels more business-friendly, and private equity firms are positioning themselves for increased deal flow over the rest of the year.

Sustainability Integration Maturing Across Strategies

The way firms approach sustainability continues to evolve. In private credit, a recurring challenge is the quality and availability of sustainability data from borrowers—particularly in markets where transparency is limited. Lenders are responding by working more directly with portfolio companies to help build their reporting capabilities and embed sustainability thinking into day-to-day operations.

Private equity firms, meanwhile, continue to use their active ownership model to drive sustainability improvements. We’re seeing a growing gap between portfolio companies with PE backing and those without, especially regarding sustainability performance and reporting maturity.

Regional Differences Still Matter

Regional attitudes toward sustainability remain distinct. Europe continues to lead with regulation and investor expectations, while the U.S. landscape is more fragmented. The politicisation of sustainability in the U.S. has shifted the focus from values-based arguments to financial materiality and risk. For sustainability professionals, this means adapting how they talk about impact—less about purpose and more about performance.

Even so, global capital is still flowing into strategies that incorporate sustainability, especially in private credit, infrastructure, and energy transition plays. 

Real Assets 

There’s a growing view among investors that real assets are offering a rare opportunity right now. Higher interest rates and tighter credit have reset valuations in parts of the market, creating attractive entry points for investors with dry powder and long-term horizons. Direct lending into infrastructure and alternative credit strategies is proving especially popular.

After a sharp correction in 2023–2024, the market for sustainability talent is showing early signs of a rebound—but hiring is now much more focused. Instead of building large teams, many firms are taking a more strategic approach, looking for professionals who can wear multiple hats.

There’s demand for people who can bridge finance and sustainability—those who understand due diligence, company structures, and investment processes, but who also bring climate or reporting expertise to the table. As CSRD ramps up, expect continued demand for roles focused on compliance, reporting, and climate risk.  

Regional Highlights

United Kingdom

The UK continues to recover gradually, with London holding firm as a key financial hub. Mid-market opportunities in healthcare tech and energy infrastructure are drawing attention, especially in areas like battery storage and grid optimisation. The FCA’s new Sustainability Disclosure Requirements (SDR) are starting to shape how asset managers think about implementation, driving demand for compliance-focused talent. There’s also a growing interest in biodiversity and natural capital themes, where the UK is emerging as a leader. 

Continental Europe 

In Europe, regulation continues to lead the conversation. CSRD is driving significant change, and we’re seeing innovation in how firms structure their reporting functions and investment products—particularly around SFDR Article 8 upgrades. Talent shortages are acute in hubs like Luxembourg, especially for professionals who can translate sustainability goals into investment outcomes. Climate-focused junior hires are in demand, as firms look to pair technical expertise with strategic oversight. 

Middle East 

The Middle East is making steady progress in its economic diversification efforts, with sovereign wealth funds stepping up as global allocators of capital. Major investments in renewables, green hydrogen, and water solutions are complementing traditional energy strengths. The region’s regulatory frameworks—especially in the UAE and Saudi Arabia—are developing quickly, though implementation remains more flexible than in Europe. Talent with both global sustainability knowledge and local context is in high demand, especially among sovereigns and family offices. 

United States 

Deal activity in the U.S. is gaining pace, with private credit particularly buoyant. The return of a more pro-business stance in Washington is encouraging, but the newly announced tariffs are creating uncertainty in globally exposed sectors. Regarding sustainability, the tone is pragmatic—firms are focused on what’s financially material and operationally relevant. Interest in sectors like tech-enabled healthcare, energy resilience, and climate infrastructure is growing. On the talent front, there’s a strong demand for financially-minded sustainability professionals who can add commercial value in investment roles.

Looking Ahead - Growth, but Not Without Friction

As we head into Q2, the direction of travel for private markets is clearer—but not without complexity. We will likely see more capital deployed as regulatory certainty improves and M&A activity picks up. At the same time, compliance and disclosure requirements—especially in Europe—are becoming more intensive, pushing firms to rethink how sustainability is embedded into core operations.

We’re also seeing sustainability functions shift. Rather than standalone teams, there’s a move toward embedding expertise across finance, investment, and legal teams. This isn’t a retreat from sustainability—it’s a sign of maturity.

The most in-demand professionals can operate across disciplines: understand the numbers, speak the language of regulation, and still keep the bigger picture in view. As one sustainability leader recently put it, “It’s no longer about being a sustainability expert—it’s about being a business expert who knows how to make sustainability work.”

Despite ongoing challenges, private markets remain a powerful engine for innovation and impact. And if the first quarter is anything to go by, 2025 could be the year that private capital really gets moving again—with sustainability firmly embedded in the driver’s seat.