2025 Outlook: 5 Trends To Watch

Happy Holidays, !

As Christmas nears, we’re excited to bring you a special edition highlighting 5 trends to watch in 2025. Watch out for our 2024 Year in Review next week and let’s get right into it!

— Team PE 150

In this Issue:

• AI and Infrastructure

• Liquidity

• Cybersecurity

• Macro View: 2025

• Private Credit

• SWFs

• Interesting Articles

🤖 AI and Infrastructure

AI Power Demand: Efficiency Meets Exponential Growth

AI power demand is poised for explosive growth throughout the decade, even as power use per AI server declines due to expected efficiencies and advancements in hardware. Between 2022 and 2030, AI power demand surges from 9.13 TWh to 210.67 TWh, a staggering 23x increase. This growth reflects the accelerating adoption of AI models and the sheer computational intensity of AI workloads.

Interestingly, while power use per AI server peaks in 2024 at 4.33 KW and begins to decline thereafter—falling to 2.02 kW by 2030—AI power demand continues to rise. This shift underscores the role of hardware efficiency improvements and a mix shift towards more optimized systems, which mitigate per-server energy use. However, the rapid scale-up of AI deployment more than offsets these gains, driving overall energy consumption to unprecedented levels. For data centers and infrastructure planners, this trend highlights the urgent need for sustainable energy strategies to support AI’s exponential growth.

Data Center Spending on the Rise to Meet AI Power Demands

As AI power demand skyrockets, global spending on data center construction is expected to rise steadily, reflecting the need for expanded infrastructure to support AI workloads. Between 2022 and 2030, spending by co-location companies and hyperscalers will climb from $32 billion to $49 billion, an increase of over 50%. Co-location companies will drive the bulk of this growth, scaling from $23 billion in 2022 to $36 billion in 2030, while hyperscalers—key players in AI model training and deployment—will grow from $9 billion to $13 billion over the same period.

This upward trajectory underscores the increasing demand for data center capacity to house AI-optimized servers, manage higher rack densities, and implement advanced cooling solutions. Hyperscalers' role, although smaller in absolute numbers, remains pivotal as their AI infrastructure expansion directly influences power usage and construction trends. As AI adoption accelerates, we can expect sustained investment in both hyperscale and co-location facilities, ensuring data centers keep pace with AI’s exponential growth while addressing efficiency and sustainability challenges.

💰 Liquidity

Alternative Liquidity Solutions: A Key Lifeline for PE in 2025

As private equity firms face mounting liquidity pressures in 2025, alternative solutions like secondaries, continuation funds, and GP stakes investing are poised to play a critical role. Secondaries, which hit $132 billion in 2021 and remain above $100 billion through 2023, provide a proven pathway for LPs to cash out while maintaining flexibility for fund managers. Similarly, continuation funds, though smaller in scale, have grown significantly, peaking at $7.3 billion in 2020, as firms extend asset holding periods and unlock additional value. These tools will be essential for managing the 2025 maturity wall and enabling firms to stabilize cash flows without sacrificing returns.

GP stakes investing—where minority stakes in private equity firms are sold to investors—also offers a strategic liquidity avenue. While activity fluctuated, hitting $7.36 billion in 2021 before moderating to $2.08 billion in 2023, its potential remains vital for firms looking to secure capital without asset disposals. Together, these solutions provide a robust toolkit to navigate the upcoming liquidity crunch, offering private equity firms the means to sustain operations, deliver returns, and weather 2025’s financial headwinds

🔐 Cybersecurity

Cybersecurity: A Key Growth Trend for PE in 2025

Private equity and venture capital investments in cybersecurity are showing a strong rebound in 2024, signaling the sector’s growing importance and positioning it as a key trend to watch in 2025. As of May 2024, transaction values have already reached $8.51 billion, nearly double the $4.46 billion recorded during the same period in 2023. With only five months of data accounted for, this early momentum indicates that 2024 is on pace to surpass the $10.92 billion total investments of 2023. Though deal volume—132 deals so far in 2024—has yet to match the 457 total deals of 2023, the increase in average deal size suggests a shift toward larger, higher-value transactions, highlighting growing confidence in cybersecurity’s strategic and financial potential.

Looking ahead, 2025 is set to be a breakout year for cybersecurity investments in PE and VC. With cyberattacks becoming more frequent and complex, businesses are being forced to prioritize robust digital defenses, particularly as AI-powered threats emerge. This rising urgency will drive demand for advanced security solutions, from AI-enhanced threat detection to cloud-native platforms and endpoint protection tools. Regulatory pressures, such as stricter data privacy laws and critical infrastructure requirements, will also compel companies to increase cybersecurity spending. For private equity firms, this presents a prime opportunity to create value by backing high-growth cybersecurity providers poised to capitalize on these trends. Given the sector's rapid acceleration in 2024, all signs point to record-breaking investment levels and deal activity in 2025 as PE firms double down on this critical and resilient sector.

📊 Macro View: 2025

Trump 2.0 and the Private Equity Landscape in 2025

The return of Donald Trump to the White House in 2025 is poised to significantly impact the private equity (PE) industry, presenting both opportunities and challenges. Trump’s pro-business stance, marked by deregulation, potential corporate tax reforms (Specifically, under the umbrella of the "2025 Presidential Transition Project", policy advisors suggest reducing the corporate income tax rate from the current 21 percent to 18 percent), and a renewed emphasis on reducing red tape, could act as a catalyst for private equity dealmaking. Deregulation is likely to benefit small and midsized businesses, the core of PE portfolios,by encouraging capital investment, boosting valuations, and accelerating M&A activity. Moreover, interest rate cuts anticipated in 2025 could lower the cost of borrowing, a critical factor for leveraged buyouts, further spurring deal volume. As pent-up demand meets a favorable regulatory and monetary environment, experts anticipate a double-digit increase in M&A activity, unlocking new opportunities for PE managers to deploy capital.

However, risks remain. Trump’s proposed tariff policies, including sweeping increases on imports, could trigger inflationary pressures, complicating cost structures for certain portfolio companies dependent on global supply chains. Additionally, the evolution of antitrust enforcement will be critical; a looser stance under a Trump administration could create a more favorable exit environment for PE-backed firms, particularly large-cap companies. Conversely, unpredictable trade dynamics and economic policy shifts may introduce volatility. Nevertheless, private equity's ability to adapt to changing conditions and leverage its operational expertise positions it well to navigate Trump 2.0. With the political and economic gates reopened, the industry is primed to capitalize on deregulation, tax efficiency, and improving deal fundamentals in 2025.

🏛️ Private Credit

Private Credit boom expected to continue

Private credit is poised for continued growth in 2025, solidifying its role as a key asset class for investors seeking diversification and enhanced returns. With an addressable market exceeding $30 trillion, private credit has steadily expanded into spaces where banks have retreated due to tightening regulations and shifting priorities. While traditional leveraged corporate debt remains a focus, the next phase of growth will likely include opportunities at the intersection of public and private markets. This evolution reflects increased demand for flexible financing structures, particularly from venture-backed companies and middle-market borrowers seeking alternatives to public market volatility. High-net-worth and retail investors are also contributing to this trend, with interval funds growing at 40% annually over the past decade

Key structural trends, such as the rapid development of AI, are also fueling private credit’s momentum. Growing capital needs for data infrastructure, energy grids, and AI-driven innovations will create opportunities for lenders to underwrite asset-backed loans and projects. Additionally, partnerships between banks and private credit lenders will continue to evolve, with banks playing a pivotal role as financiers, risk managers, and distributors of private credit products. Amid higher-for-longer interest rates, quality selection and strong financial covenants will remain critical, helping investors navigate risks while capitalizing on higher yields. 

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🌍 Sovereign Wealth Funds

SWFs: Scale and flexibility in the upcoming M&A Landscape

Sovereign Wealth Funds (SWFs) are emerging as a powerful force to watch in 2025, managing an impressive $12 trillion in assets under management (AUM), with forecasts projecting a surge to $18 trillion by 2030. This 50% growth reflects their increasing role in global markets, fueled by surplus contributions, asset transfers, and growing performance income. SWFs vary greatly in size and strategy, from Norway’s Norges Bank Investment Management with $1.379 trillion to Djibouti’s modest $170 million, yet their collective ability to catalyze strategic industries like AI, renewable energy, and infrastructure makes them key players in the evolving investment landscape. Notably, their flexible investment horizons allow SWFs to capitalize on long-term opportunities, including private equity, secondary deals, and General Partner (GP) stake investing. As new funds continue to launch globally and geographical focus shifts toward the US, Japan, and India, SWFs remain agile in deploying capital where growth is most promising.

However, SWFs are not immune to challenges. Geopolitical uncertainty and a fractured global environment demand cautious navigation, particularly as inflation stabilizes and interest rates ease. While investments in Europe and China are waning, strategies like “China plus one” highlight the rise of alternative Asian markets such as Indonesia and Vietnam. In the face of subdued M&A activity, SWFs’ scale and flexibility position them as critical investors, co-investors, and Limited Partners in higher-quality opportunities, helping bridge funding gaps and fuel global dealmaking. As fundraising markets remain tight, the influence of SWFs will only grow in 2025, with their ability to deploy capital strategically creating new pathways for sustainable returns and reinforcing their importance in an ever-evolving investment ecosystem.

📰 Interesting Articles