McDermott Will & Schulte, a global law firm

These dynamics shaped the merger of McDermott Will & Schulte on August 1, 2025. A transformational merger with $3 billion in global revenues, the deal is anchored in private capital and gives our clients broader capability, deeper experience, and greater agility.

As the traditional lines between private credit, private equity, real assets, and special situations narrow, the market has become more fluid and responsive. When public markets and traditional lenders were constrained, funds delivered flexible, hybrid instruments that met a wide range of corporate needs.

An expanding universe

Despite a demanding fundraising environment, one of the defining themes of 2025 was the broadening of the investor base. More managers are coming to market with vehicles built to access the rising demand that various data sources estimate reaches well into the trillions of dollars.

We have seen continued growth of business development companies, interval funds, tender offer funds, non-traded REITs, and emerging European semi-liquid structures.

On August 7, 2025, the US administration issued a long-awaited executive order calling for expanded access to private equity and other alternative investments for 401(k) retirement plans in the United States, accelerating the democratization trend. Managers sense a huge opportunity to scale assets under management. For example, Ares said it is targeting $125 billion in wealth assets for its platform by 2028.

Our lawyers have been at the forefront of developing evergreen, semi-liquid fund structures for at least a decade, allowing investors to access liquidity options while investing in illiquid assets.

It is not just retail capital that is drawn to evergreens. Institutional investors also appreciate many of the advantages of the structures alongside traditional drawdown vehicles. We see evergreen funds being deployed in a growing number of asset classes as well, including real estate, private equity, special situations, and illiquid private credit.

Hamilton Lane estimates evergreen funds at roughly 5% of private markets (or $700 billion), with forecasts suggesting growth toward 20% over the next decade.

The regulatory backdrop

Regulatory developments remain a focus for all private market participants, especially as retail capital scales. The US administration has signaled a shift in tone, with policymakers aiming to support innovation and private markets growth.

Europe shows similar intent, with efforts to help savers and pensioners access private fund returns. Political sentiment also reflects a desire to reduce bureaucracy to drive economic growth.

There is still substantial legislative activity for managers to track. AIFMD II implementation is underway across the EU Member States, and the European Commission has proposed significant updates to the Sustainable Finance Disclosure Regulation, including new approaches to Article 8 and Article 9 classifications.

New regulatory frameworks are also emerging in response to technological advancements, including the EU Artificial Intelligence Act and increased attention on digital asset oversight. Firms must maintain clear visibility across these changes and invest in robust compliance processes.

An optimistic deal outlook

Transactional activity has been muted for several years. Early hopes of M&A rebound entering 2025 were tempered by shifting trade policies that introduced new uncertainties.

By the end of 2024, the macro backdrop stabilized and there were palpable signs of recovery. Dealogic data shows global private equity deal values hitting a record high in Q3.

Across private markets, returning capital to investors remained a major theme, with DPI under pressure. A difficult exit environment limited the use of abundant liquidity, and these dynamics combined to increase attention on secondaries throughout 2025, with more continuation vehicles used to return capital to LPs while retaining exposure to strong assets. The focus on DPI also supported dividend recapitalizations and further innovation in fund finance and NAV-based lending.

Driven by its role as a liquidity source, private credit has remained hot despite M&A hitting historic low levels. Reports indicate that nearly a third of firms were renegotiating pricing or structure in 2025, reflecting a more dynamic approach to managing capital with flexible providers. Private credit continued to dominate credit market activity throughout the year, expanding its reach into expanding sub-asset classes, including asset-backed lending, litigation finance, and fund finance.

Private equity managers also pushed into more specialized strategies, such as specialty finance, digital assets and cryptocurrencies, infrastructure, and energy transition.

Looking at 2026, expectations point toward a steady build in M&A and an upward trajectory in private equity deployment, supported by a more functional exit environment and an increased ability of LPs to recycle capital.

Private markets have been tested in recent years and shown an ability to adapt, innovate, and deliver. With new pools of capital now entering the ecosystem, we are optimistic for the year ahead.

We hope this edition of Private Markets Update provides clarity on key themes. We look forward to working alongside you as you navigate the next 12 months.

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