A few investment themes impacting the private markets that the Financial Advisor Solutions Team is watching closely for the year ahead, brought to you by: the year 2025!
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The ratio of the U.S. Stock Market Value to U.S. GDP (aka the Buffett Ratio) is currently above 2x, marking only the second time it has reached this level in the past 20 years.1
U.S. Stock Market Capitalization to U.S. GDP
The previous instance was just before 2022, a year the Wilshire 5000 and the S&P 500 returned -19% and -18%, respectively. While the economy looks strong heading into 2025, we believe investors should be cautious when valuations deviate substantially from the mean.
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0 is the average number of maintenance covenants on new large-market private lending and leveraged loans.2 A shift to risk-on from banks has put pressure on the upper end of the market. As a result, we believe private credit managers who can pivot to the core-to-lower middle market – where covenants are stronger and spreads are wider – are best positioned to win.
0% is also the level which the Leading Economic Indicator has recently surpassed, currently sitting at 0.4% after being negative for a good part of the past 2 or 3 years.3 A positive value reflects that a recession signal has turned off, which aligns with many economists’ views that the U.S. has avoided a recession.
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$2tn is the estimated investment in new electricity generation that is needed to support the growth of data centers over the next 5 years. By 2030, U.S. data centers alone are projected to consume more power than all but five countries today.4
Largest Countries by Power Demand
| Rank | Country | TWh Consumed (2022) |
|---|---|---|
| 1 | China | 8,540 |
| 2 | United States | 4,128 |
| 3 | India | 1,463 |
| 4 | Russia | 1,026 |
| 5 | Japan | 939 |
| U.S. Data Centers in 2030 | 635 | |
| 6 | South Korea | 587 |
| 7 | Brazil | 583 |
| 8 | Canada | 553 |
| 9 | Germany | 507 |
| 10 | France | 426 |
| 11-26 | Countries 11-26 | 252 (avg.) |
| U.S. Data Centers in 2022 | 159 |
We believe robust demand for data centers and power, driven by cloud computing, internet-of-things, 5G and AI adoption, represents a meaningful opportunity in private real estate and private infrastructure in the coming years.
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5% is the average nominal cap rate on industrial real estate compared to 3.4% in March of 2022 (when the Fed began raising interest rates). This increase resulted from contracting real estate values, which we believe presents an opportunity for buyers in 2025.
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Residential was the most favored property type by real estate buyers in the first half of 2024 and accounted for 20% of total global real estate deal value.5
Quarterly Global Private Real Estate Deal Size
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25% is the ratio of dry powder to AUM for both private equity and private credit, which are a part of a larger downtrend across asset classes over the past 5 years.6
Dry Powder to AUM, By Asset Class
A common concern in the private markets is the influx of capital pouring into the space and an inability to deploy it into good opportunities (or even deploy it at all). We believe dry powder is at a relatively healthy level due to steady deployment at greater deal values, indicating continued support for deal-making in the future.
With encouraging signs from Private Infrastructure, Private Equity, Private Credit and Private Real Estate, 2025 is ringing in the new year in style!
