2025 predictions

Welcome back and happy 2025!

Let’s talk 2025 today.

I’ve gotten many questions on my expectations, so I wanted to distill my biggest predictions for both LPs and GPs.

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Before we get to the fun stuff - I often get asked about macro resources, here are some links I saw online for 2025 macro outlooks, listed by name of firm/publisher:

• BlackRock iShares

• Invesco

• HSBC

• J.P. Morgan Asset Management

• Goldman Sachs

• KKR Infrastructure

• J.P. Morgan Private Bank

• T. Rowe Price

• BNP Paribas

• UBS

• Morgan Stanley

• Robeco

• Columbia Threadneedle Investments EMEA APAC

• Amundi

• Schroders PE

• Barclays Private Bank

• Colliers

2025 Predictions for LPs and GPs

Predictions for Limited Partners

• Based on all of my conversations with LPs, I think roughly half of the retail LPs that have had their equity wiped out aren’t aware of this fact yet.. and this will take another year or two to work its way through

• I think a lot of these retail investors are frustrated, which will impact retail capital fundraising for years to come (sentiment). On the other hand I’m finally starting to see deals that make sense and it’s not a terrible time to get in from a basis perspective, so I suspect some LPs will start investing for the first time as interesting deals arise

• I think many LPs will ultimately pick a corner, so to speak - either they’ll decide they can’t do diligence and stick to more liquid investment strategies (e.g. SP500) , or they’ll invest in education to invest more as an LP

• I’ve said this before and I’ll continue beating the drum: I think a lot of retail LPs that shouldn’t have been investing, did invest … meanwhile, many Ultra High Net Worth people that should have invested actually didn’t.

• I expect the overall number of LP participation in deals to continue to be low relative to 2021/2022 within the retail world, but it’ll be interesting to see how that’s offset by more sophisticated LPs & allocators in the space looking for distress

• “How could it be possible that an LP doesn’t know about their equity being wiped out?”

• There are roughly three cases:

• GP hasn't said anything to their LPs

• GP did communicate, but downplayed the severity of the situation

• GP actually did communicate the situation, but the LP didn't understand it (least common within the subset that I’m describing herein, but I’ve seen it)

• The first two cases listed above are surprisingly common...

• In some cases, the GP has even pushed off (sometimes intentionally, other times perhaps due to desperation) the bad news in an attempt to continue raising capital on new deals

• I wish I could say otherwise, but I don't think 2025 will be an easy year for existing LPs with 2021/2022 vintage deals. If you’re one of them, I would make sure you understand what your equity is worth.

• The distress in the aforementioned deals will likely lead GPs to consider all types of complex structures that are being sold to LPs as being “better” for them, when in fact (in most cases) they’re not. Some of these to look out for and diligence would include:

• Forming a REIT, recapitalizations, cross collateralization via preferred equity or debt, continuation funds, etc

• I’ll write on this in more detail soon, but for now I just want everyone to be aware that there’s usually massive conflicts of interests here and you should (as LP, on either side of such a transaction) proceed with a lot caution (this assumes you have rights to consent).

• Read more about this in Spotting GP/LP Misalignment

• More feeder funds / masterminds

• Feeder funds and fund of fund models exist for a reason, and they’re fundamentally sound when executed well. Having said that, there have been a large number of these that recently started.. and I expect this trend to continue

• Read more on the topic of Feeder Funds here and listen to what happens behind the scenes at some masterminds here

• Also recall that a lot of these have pretty serious sales tactics, which I’ll remind you of here (see 2c/g/h below in particular, akin to affinity fraud; see Top 15 Syndication Mistakes for the full article)

• Just like most LPs haven’t heard of cash in refinances before investing prior to 2022, I think “gain to lease” is the next surprising term with a bite.

• I’ll write more on this soon, but in the meantime just a reminder that rents don’t always go up against an existing rent roll

• When rents drop and a lease rolls (expires), the Rent on a given unit can drop year over year… this means that when you’re looking at a proforma with rents that are at or above market (and the market is headed downhill), you need to be very careful about rent growth and occupancy assumptions

Predictions for General Partners (which I would also recommend LPs to read)

• Your best investor is usually your existing one

• A lot of GPs ask me how to fundraise better in 2025 and usually my best advice is talk to your existing LPs more.. and be transparent

• Of course you should go out there and meet new people, but it’s hard to express how many times I talk to LPs who have very deep pockets and are interested in investing that capital … but they’re frustrated with the lack of transparency or honesty during hard times

• It’s true that the majority of what LPs generally care about are returns, but there’s also a relationship there that is (hopefully) meaningful … and when people sense truth and honesty (even if it’s painful), some GPs are surprised at what comes next

• Alignment of interests will continue to revert back to more normal numbers

• As a reminder, I look at all of the following alignment of interest variables as one (i.e. making one worse for the LP means another should improve)

• Preferred return and split between GP & LP

• Fees

• Coinvest

• You can read more on Alignment of Interests and why making quick decisions on one of these variables is a bad idea here

• These terms got very GP favorable between 2019 and early 2022 and I’ve seen a material shift since then, which I expect to continue.

• Bad news / good news:

• The bad news is that this is (potentially less) money for you (the GP), since this appears to be the trend

• The good news is that most long term capital management businesses are built on fairly LP-friendly terms (with some notable exceptions which I go into here). This means that if you find a sweet spot with your LPs, do a good job, and rinse & repeat.. you’ll likely have a huge firm in 10-20 years (assuming that’s your goal, of course!)

• GP Takeovers / Rescue Capital

• I expect GP takeovers to accelerate in 2025, some of which your LPs will know about because they’re invested in distressed deals (hint: another good reason to speak to your LPs).

• Removing an existing manager or providing rescue capital on a deal (or to the GP entity) is extremely complicated, but when the lender calls and the time’s running out these structures do occur .. and I expect to see a lot more of it in 2025

What did I miss? Curious if you have any predictions yourself!

I advise LPs on existing and potential positions and write articles here weekly on what I see in the marketplace that could help you invest better. You can find me on LinkedIn or Twitter.

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