Key Takeaways
- • Venture capital funds delivered a 22.0% return in 2025, ending a three-year underperformance period and posting double-digit gains that outpaced buyout funds (10.1%) and private credit (9.8%).
- • Venture capital's rebound was driven by improved sentiment around late-stage company valuations, though realized gains remain limited as distribution activity continues below historical averages.
- • Infrastructure extended its strongest performance streak with a 12.8% annual return, marking a decade without negative annual returns, while real estate remained the weakest asset class with another negative quarter in Q4 2025.
- • A pipeline of highly valued, late-stage venture-backed companies anticipated for mega-IPOs could unlock significant liquidity for limited partners in 2026, but renewed public-market volatility and software valuation pressure pose material risks to near-term exit activity.
- • Private credit faces emerging headwinds in 2026 from software-related borrower stress and accelerating redemption requests for evergreen funds, despite 2025 gains driven by floating-rate loan pass-throughs of elevated interest rates.
Summary
Venture capital emerged as the top performer in private markets during 2025, delivering a 22.0% annual return that marked a decisive reversal after a challenging three-year period in which the asset class underperformed most alternatives. According to MSCI, this rebound was substantially driven by improving investor sentiment regarding late-stage company valuations, signaling renewed confidence in the venture ecosystem following years of valuation compression and capital constraint.
The broader private markets landscape showed mixed performance across asset classes. Buyout funds posted a more modest 10.1% return, while private credit generated a 9.8% annual return bolstered by floating-rate loan structures that continued channeling elevated borrowing costs to institutional borrowers. Infrastructure demonstrated the most consistent performance trajectory, finishing 2025 at 12.8% and extending an unbroken decade-long streak without negative annual returns. Real estate, by contrast, remained under significant pressure, posting another negative quarter in Q4 and failing to establish a stable floor since the 2022 onset of interest-rate hikes—closing as the weakest performer across major private asset classes.
A critical caveat tempers the venture capital narrative: these gains remain largely unrealized. Distribution activity—the conversion of paper gains into cash returns—continues significantly below historical norms, limiting institutional investors' ability to deploy capital elsewhere or meet obligations. This structural constraint underscores the gap between reported valuations and actual liquidity available to limited partners.
Looking forward to 2026, a substantial pipeline of late-stage venture-backed companies valued at premium levels and positioned for potential mega-IPOs presents an opportunity to unlock long-awaited liquidity. However, this scenario faces material headwinds. Public-market volatility has already resurfaced, software valuations are facing renewed pressure, and scrutiny of private-market valuations is intensifying—any of these factors could materially delay exit timing and defer the crystallization of unrealized value. Additionally, private credit faces emerging stress from software-sector borrower distress and mounting redemption queues at evergreen funds, signaling potential credit deterioration risks in early 2026.
The broader private markets landscape showed mixed performance across asset classes. Buyout funds posted a more modest 10.1% return, while private credit generated a 9.8% annual return bolstered by floating-rate loan structures that continued channeling elevated borrowing costs to institutional borrowers. Infrastructure demonstrated the most consistent performance trajectory, finishing 2025 at 12.8% and extending an unbroken decade-long streak without negative annual returns. Real estate, by contrast, remained under significant pressure, posting another negative quarter in Q4 and failing to establish a stable floor since the 2022 onset of interest-rate hikes—closing as the weakest performer across major private asset classes.
A critical caveat tempers the venture capital narrative: these gains remain largely unrealized. Distribution activity—the conversion of paper gains into cash returns—continues significantly below historical norms, limiting institutional investors' ability to deploy capital elsewhere or meet obligations. This structural constraint underscores the gap between reported valuations and actual liquidity available to limited partners.
Looking forward to 2026, a substantial pipeline of late-stage venture-backed companies valued at premium levels and positioned for potential mega-IPOs presents an opportunity to unlock long-awaited liquidity. However, this scenario faces material headwinds. Public-market volatility has already resurfaced, software valuations are facing renewed pressure, and scrutiny of private-market valuations is intensifying—any of these factors could materially delay exit timing and defer the crystallization of unrealized value. Additionally, private credit faces emerging stress from software-sector borrower distress and mounting redemption queues at evergreen funds, signaling potential credit deterioration risks in early 2026.
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