Overview of funds market and fundraising environment

The challenges facing the funds and asset management sector continued in the first quarter of 2025. In the listed space, difficult to shake discounts prevented most funds from accessing new equity capital and deterred any prospect of new initial public offerings (IPOs). A volatile macro-economic and global political backdrop did nothing to alleviate these challenges. The last couple of months have seen some listed fund share prices make modest recoveries and the recent further interest rate reduction is a step in the right direction in terms of the potential to restore confidence in capital markets with further cuts favoring income-producing asset classes such as infrastructure, renewables and real estate where comparative risk-rated returns will begin to look more attractive.

In some good news, the Association of Investment Companies reported that venture capital trusts (VCTs) raised £895 million in the 2024/25 tax year to invest in early-stage companies in the UK, the third highest fundraising by VCTs in any tax year. 

 A number of listed funds have continued to implement share buy-backs in the market. Others have announced changes to the basis of the calculation of their management fees whilst a number of new strategic review announcements have been made, some in response to shareholder (including activist) pressure.

In April, the UK Financial Conduct Authority (FCA) announced proposals to develop a lighter touch and more proportionate regime within the Alternative Investment Fund Manager (AIFM) regulation. This development has been welcomed by the industry and is discussed in more detail in our article ‘The UK’s proposals to streamline the rules for AIFMs.’ Conversely there has been considerable debate about the likely impact of the inclusion of investment trusts in the consumer composite investments (CCI) regime (as also discussed below).

In terms of private markets, the mood at the beginning of 2025 was broadly positive, driven by the expectation that falling interest rates would drive exits generating distributions and therefore fundraising liquidity. Deal activity in Q1 2025 seemed to justify such optimism with global private equity acquisitions up by 45 percent (by volume and value) as compared to Q1 2024. In addition, a significant portion of this activity was attributable to trade sales, suggesting that we may see this traditional exit route making a comeback in 2025. However, in recent months uncertainty regarding the US administration’s direction of travel on tariffs and consequent impact on public markets has dampened this mood and inhibited deal activity as market participants wait for greater clarity¹ (a recent EY survey reported that three-quarters of general partners polled expect tariffs to have a moderate negative impact on deployment activity over the next three to six months). In addition, dry powder, which according to the British Venture Capital Association stood at £178 billion in Q4 last year for UK private equity houses, continues to act as a chilling factor on fundraising efforts.

Polls conducted by various data providers and advisors do however indicate that sponsors remain cautiously optimistic that the fundraising landscape will improve over 2025. A recent survey conducted by Investec reported that only 3 percent of respondents anticipated a lower fundraising total for their next fund compared to 21 percent in 2024.² Market expectation is that mega-cap sponsors will continue to be the primary beneficiaries of a modestly rising fundraising tide, however large allocators are also looking more actively at the mid-market and first-time managers (provided that the team has impeccable and clearly attributable track record). These sectors are drawing renewed attention as investors look to (i) the mid-market for better distributed to paid-in capital (DPI) returns than have been seen recently on large leveraged buyout (LBO) strategies and (ii) to first time managers for enhanced economics through general partner (GP) stakes and fee deals. 

We expect to see recent trends in the market continuing, including: (i) sponsor consolidation as smaller houses struggle to fundraise and larger houses look to grow assets under management through acquisitions; (ii) protracted fundraising periods (for example, 24 months); (iii) continuation funds and permanent capital vehicles being used as alternatives to more traditional exit routes; (iv) increasing participation by private wealth in private funds with mid-market sponsors following the lead of the mega-cap houses and establishing platforms to facilitate high net worth access to their products (including by partnering with an established private wealth asset manager); and (v) continuing growth in the secondaries market.

For asset managers, some of the key themes that we have seen over the past few years continue. We discuss later in this publication the potential deal drivers we have identified in terms of market consolidation and merger and acquisition (M&A) activity.