ALTERNATIVE MARKETS UPDATE – SUMMARY 2025

​Throughout 2025, the US macroeconomic environment was characterised by a gradual normalisation following the post-inflation shock period of prior years. Inflation was largely brought under control, consistently hovering in a narrow 2-3% range - still above the Federal Reserve’s formal 2% target, but sufficiently contained to reduce its dominance in policy deliberations. As price pressures stabilised, the Fed progressively shifted its focus towards labour-market dynamics, with unemployment emerging as the marginal variable guiding monetary policy decisions. During the first half of the year, policymakers remained deliberately cautious, refraining from early rate cuts amid concerns that premature easing could reignite inflation, particularly given still-historically strong employment conditions, even as unemployment began to trend higher. This stance changed in the autumn and winter months, when a clearer softening in labour markets, combined with inflation remaining at tolerable levels, provided the Fed with sufficient confidence to pivot. Over this period, the central bank implemented three 25 basis-point rate cuts, signalling a controlled transition towards a more accommodative stance while maintaining credibility on inflation containment.

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RESEARCH PERSPECTIVE VOL. 268 January 2026 Alternative Markets Summary 2025 Throughout 2025, the US macroeconomic environment was characterised by a gradual normalisation following the post-inflation shock period of prior years. Inflation was largely brought under control, consistently hovering in a narrow 2-3% range - still above the Federal Reserve’s formal 2% target, but sufficiently contained to reduce its dominance in policy deliberations. As price pressures stabilised, the Fed progressively shifted its focus towards labour-market dynamics, with unemployment emerging as the marginal variable guiding monetary policy decisions. During the first half of the year, policymakers remained deliberately cautious, refraining from early rate cuts amid concerns that premature easing could reignite inflation, particularly given still-historically strong employment conditions, even as unemployment began to trend higher. This stance changed in the autumn and winter months, when a clearer softening in labour markets, combined with inflation remaining at tolerable levels, provided the Fed with sufficient confidence to pivot. Over this period, the central bank implemented three 25 basis-point rate cuts, signalling a controlled transition towards a more accommodative stance while maintaining credibility on inflation containment. In the euro area, 2025 was marked by a structurally weaker growth profile relative to the US, with the divergence most clearly visible in GDP dynamics rather than in labour-market conditions. While US growth continued to benefit from stronger productivity, fiscal impulse, and domestic demand, euro-area GDP growth remained subdued, constrained by weak investment, soft industrial activity, and limited fiscal flexibility across several member states. Inflation, however, stayed well contained and hovered close to the ECB’s 2% target for most of the year, allowing monetary policy to focus squarely on supporting growth rather than restraining price pressures. Despite GDP underperformance, unemployment remained near record lows, reflecting structural labour shortages, and demographic pressures, rather than cyclical strength. Against this backdrop, the ECB cut interest rates aggressively in the first half of 2025, lowering the Deposit Facility Rate to 2%, explicitly aiming to stabilise growth and prevent further economic stagnation. Figure 1 shows the macroeconomic conditions since 2023. Figure 1: Inflation Rate and Interest Rate in the US, Euro Area and the UK, Sources: US Bureau of Labor Statistics, Federal Reserve, European Central Bank, Eurostat, Bank of England, Office for National Statistics & TradingEconomics, January 2026 The UK presented a more complex macroeconomic picture. After a sharp decline in inflation throughout 2024, price pressures re-accelerated in 2025, with inflation hovering close to 4% during the second half of the year before only recently easing below 3%. This persistence complicated monetary policy at a time when the economy continued to grapple with structurally weak productivity growth, lingering post-Brexit trade frictions, tight fiscal constraints, and elevated sensitivity to higher interest rates due to the prevalence of variable-rate mortgages. Despite these challenges, and amid signs of slowing activity and easing labour-market tightness, the Bank of England proceeded cautiously with policy normalisation, delivering four 25 basis-point rate cuts over the course of the year, bringing the policy rate down to 3.75%. The pace of easing reflected a careful balance between supporting growth and ensuring that inflation expectations remained firmly anchored. Turning to US government yields relative to the federal funds rate, 2025 was marked by a notable disconnect between monetary policy easing and the behaviour of the long end of the yield curve. Throughout much of the year, tensions between the executive branch and the Federal Reserve were increasingly visible, with Donald Trump publicly pressuring the Fed to cut rates more aggressively, while Jerome Powell maintained a firm stance, prioritising inflation credibility and institutional independence. As a result, policy rates remained unchanged for most of the year, with easing only beginning in late 2025. Even then, the transmission to longer-dated Treasuries was limited: while the Fed delivered a cumulative 75 basis points of rate cuts, long-dated US Treasury yields declined by only around 30 basis points. Towards year-end, the US 10-year yield briefly dipped below 4%, before rebounding to approximately 4.3%, driven by heightened geopolitical uncertainty and renewed concerns over fiscal sustainability and Fed independence. Figure 2 shows the comparison of the Federal Fund Rate and the US 10-Year Treasury yield. These concerns intensified further following reports that Trump had initiated a Department of Justice investigation into Powell. Looking ahead, 2026 will be a critical year for rates markets, with investor attention firmly focused on the potential announcement of a new Fed Chair in May 2026 and the implications this may have for the future conduct of US monetary policy and the credibility of the policy framework. Figure 2: Comparison of US 10-Year Treasuries and Federal Fund Rate, Source: Investing.com, January 2026 Turning to equities, 2025 delivered broadly positive returns across major regions, albeit with notable dispersion in both performance and underlying drivers. In the US, the S&P 500 advanced by 16.3%, supported primarily by continued strength in artificial intelligence–related equities, where earnings momentum, capital expenditure visibility, and balance-sheet resilience remained key tailwinds. Despite this solid performance, US equities underperformed Europe, reflecting a combination of more stretched valuations and a more cautious monetary-policy backdrop for much of the year. European equities benefited from a catch-up dynamic, with gains driven predominantly by Germany and the UK, alongside strong contributions from several smaller economies. Sectorally, performance was led by industrials, defence and aerospace, and selective financials, with elevated defence spending and infrastructure investment providing sustained earnings support. By contrast, France and Switzerland lagged the broader European market, weighed down by weaker luxury-goods demand, healthcare underperformance, and idiosyncratic political and regulatory headwinds. Japan emerged as the top-performing developed market, delivering returns of approximately 26%, underpinned by ongoing corporate governance reforms, improving capital efficiency, a weaker yen supporting exporters, and renewed foreign investor inflows. China also posted a strong rebound of around 18%, driven by policy support measures, targeted stimulus, stabilisation in the property sector, and a re-rating from deeply depressed valuations, particularly in technology and consumer-related segments. Figure 3 shows the performance of these countries in 2025. Figure 3: Performance Overview of Global Equities in 2025 (US: S&P 500, Germany: DAX, UK: FTSE 100, France: CAC 40, Switzerland: SMI, Japan: Nikkei 225, China: Shanghai Composite), Source: Investing, January 2026 In 2025, financial markets were repeatedly buffeted by spikes in volatility driven by both domestic US political dynamics and a series of geopolitical flashpoints. Early in the year, market turbulence was triggered by aggressive trade policies announced by Donald Trump, culminating in widespread tariff actions in April that led to one of the sharpest global sell-offs of the year around what was later dubbed “Liberation Day”. As shown in Figure 4, this led to a spike in volatility as markets reacted to protectionist announcements and uncertainty over trade escalation. This was followed by renewed jitters in September and again in October/November, largely attributed to heightened geopolitical risk premiums as conflict dynamics in the Middle East intensified (notably between Israel and Iran after strikes and broader regional escalation fears), concerns around the Israel–Hamas war’s persistence, and ongoing instability surrounding Russia–Ukraine. The year also saw other sources of volatility, including periodic episodes related to political unrest in emerging markets and supply-chain anxieties, but these were more idiosyncratic and geographically limited. Despite this backdrop, the market’s reaction to geopolitical strife was often more transient than structural; equity indices generally absorbed shocks without translating them into sustained downturns, supported by solid fundamentals in key sectors and risk-on positioning for much of the year. Exceptions occurred around specific events such as the Greenland dispute – where contentious policy proposals and trade-related uncertainty led to outsized market reactions in early 2026 – and the early April tariff surge that did materially impact global equities. Notably, volatility around crises such as in Venezuela had relatively limited direct impact on major equity markets compared with the calibrated but noisy reactions to US policy shifts and broader geopolitical risk episodes. Figure 4: VIX Index from January 2025 to January 2026, Source: Investing & CBOE, January 2026 Commodities were among the standout asset classes in 2025, benefiting from a combination of heightened geopolitical uncertainty, structural supply–demand dynamics, and a broader trend towards de-dollarisation. Gold rose by approximately 78% since the beginning of the 2025, reinforcing its role as the primary geopolitical hedge amid persistent conflicts, rising sovereign risk premia, and increasing concerns around the long-term credibility of fiat currencies. A key structural driver remained sustained central-bank demand, particularly from emerging markets seeking to diversify reserves away from the US dollar, alongside strong investor inflows. Silver significantly outperformed, gaining around 227%, driven not only by its monetary hedge characteristics but also by its dual role as an industrial metal, with accelerating demand from solar energy, electrification, and advanced electronics amplifying an already tight supply backdrop. Copper advanced by roughly 47%, underpinned by resilient global demand linked to electrification, energy-transition investments, and data-centre infrastructure, while supply constraints - stemming from underinvestment, declining ore grades, and geopolitical risk in key producing regions - added further upward pressure. Collectively, the strong performance across precious and industrial metals reflected a market environment increasingly shaped by geopolitical fragmentation, strategic re-shoring, and a gradual re-pricing of real assets in a more multipolar global system. Figure 5 summarizes the strong performance of the aforementioned commodities since 2025. Figure 5: Performance of Gold, Silver and Copper Since the Beginning of 2025, Source: Investing, January 2026 Hedge Fund Summary 2025 Hedge funds delivered a strong year in 2025, reinforcing their role as a core allocation within institutional portfolios and re-establishing momentum. The industry remained firmly in an expansionary phase, with assets on a clear positive trajectory. Over the first three quarters of the year alone, hedge funds attracted close to $200bn in net inflows, extending a multi-quarter streak of positive capital formation and signalling renewed allocator confidence. Investor demand in 2025 was highly selective, with capital disproportionately directed towards large, established managers, continuing the consolidation trend observed over recent years, as allocators prioritised scale, infrastructure, risk management, and consistency. Multi-strategy hedge funds were among the primary beneficiaries of this trend, alongside macro and relative-value strategies, which were perceived as particularly well suited to navigating an environment of policy divergence and cross-asset dispersion. Fund formation dynamics also improved materially compared with 2024. While just over 100 new hedge funds were launched in 2024 - historically low levels - liquidations fell to a decade low, laying the groundwork for recovery. By contrast, as of Q3 2025, more than 400 new funds had been launched, with liquidations running at roughly half that level, marking a clear normalisation in industry activity and underscoring a broader and healthier rebound from the slow conditions of the previous year. Building on the favourable industry dynamics outlined above, sustained net inflows alongside generally positive performance translated into a further step-change in industry assets, pushing hedge fund AuM to new record levels in 2025. According to HFR, total hedge fund assets stood at approximately $5.15tn at the end of 2025, marking an all-time high for the industry. BarclayHedge – an alternative provider with typically higher numbers – reported an industry AuM of around $5.54tn as of Q2 2025, and extrapolating subsequent inflows and performance suggests that total hedge fund AuM is likely to be close to $6tn by year-end. As shown in Figure 6, this represents more than a doubling of industry assets compared with Q1 2020, underscoring the steep and structurally significant growth of the asset class over the past five years. Figure 6: Quarterly Hedge AuM from Q1 2020 to Q2 2025 with Estimations for Q3 and Q4 2025, Source: BarclayHedge & Stone Mountain Capital Research, January 2026 Historically, investor sentiment towards hedge funds has moved in distinct phases. Up until early 2022, the industry enjoyed strong allocator confidence, reflected in meaningful inflows driven by demand for diversification, downside protection, and uncorrelated returns amid rising macro uncertainty. Between 2022 and 2024, confidence moderated as a combination of equity market strength, fee sensitivity, and relative underperformance in certain strategies weighed on allocations. Against this backdrop, 2025 stands out as a clear inflection point. Renewed capital formation, expanding AuM, and improved engagement from institutional investors collectively point to a more constructive outlook and a re-established growth trajectory for the hedge fund industry. In performance terms, hedge funds delivered a solid, albeit measured, outcome in 2025, with the HFRX Global Hedge Fund Index posting a 7.14% return over the year, comfortably positive but below global equity benchmarks. Returns were driven by an environment characterised by elevated global uncertainty, frequent policy and geopolitical shocks, and recurring volatility across asset classes – conditions that broadly favoured active risk management and dynamic positioning. Rather than relying on sustained market beta, hedge fund performance reflected the ability to adapt exposures, monetise dispersion, and mitigate drawdowns during periods of stress. As a result, the industry delivered a more balanced return profile, reinforcing hedge funds’ role as portfolio stabilisers and diversifiers, and providing a foundation for more differentiated performance at the individual strategy level discussed in the following sections. Equity hedge funds delivered positive but mixed performance in 2025, generally lagging benchmark equity indices, which returned between 10% and 16.4% over the year. As shown in Figure 7, our SMC Equity Hedge Fund Index managed to return 29.9%, outperforming the broad equity hedge fund space. Performance was shaped by a market environment characterised by strong index-level returns but narrow leadership, where a limited number of large-cap themes drove a disproportionate share of gains. This dynamic reduced the opportunity set for traditional long–short strategies, as stock dispersion was episodic rather than persistent and crowding in winning positions increased reversal risk. At the same time, heightened macro and geopolitical uncertainty led to frequent factor rotations and sharp short-term drawdowns, favouring managers with disciplined risk control and flexible gross and net exposure management. Overall, equity hedge fund returns reflected effective downside mitigation and selective alpha generation, but the structural headwinds from concentrated market leadership constrained the ability to fully capture the upside delivered by broader equity benchmarks. Figure 7: Performance of Stone Mountain Capital’s Equity Hedge Funds and Benchmarks in 2025, Source: Stone Mountain Capital Research, Barclays, HFRX, S&P500 & With Intelligence, January 2026 Fixed income hedge funds delivered steady and attractive returns in 2025, broadly in line with benchmark indices, which gained between 6.5% and 8.2% in 2025. Our SMC Fixed Income Hedge Funds returned 8.12% in 2025, outperforming notable benchmarks, as shown in Figure 8. Performance was supported by a stabilising inflation backdrop and a gradual shift towards monetary easing, which improved carry opportunities and reduced tail risks across rates and credit markets. At the same time, ongoing uncertainty around the timing and pace of rate cuts, alongside episodic volatility, created opportunities for active positioning and relative-value trades. Overall, fixed income hedge funds benefited from a more constructive rate environment while maintaining disciplined risk management, resulting in resilient, risk-adjusted performance. Figure 8: Performance of Stone Mountain Capital’s Fixed Income Hedge Funds and Benchmarks in 2025, Source: Stone Mountain Capital Research, Barclays, HFRX, Bank of America & With Intelligence, January 2026 Global macro hedge funds posted a wide range of outcomes in 2025, with benchmark performance spanning approximately 4.3% to 14%, reflecting significant dispersion within the strategy. As shown in Figure 9, our SMC Tactical Trading Strategy Index returned 6.6% in 2025, well within the wide dispersion of benchmarks. The macro environment was defined by shifting policy expectations, geopolitical developments, and divergent growth and inflation trajectories across regions, creating a rich but complex opportunity set. Successful managers were able to adapt dynamically to changing regimes, exploiting relative moves across rates, currencies, and commodities while limiting drawdowns during periods of abrupt market repricing. Overall, the strategy benefited from an environment conducive to active, flexible positioning, though outcomes were highly dependent on timing, risk management, and the ability to navigate rapidly changing macro narratives. Figure 9: Performance of Stone Mountain Capital’s Tactical Trading Hedge Funds and Benchmarks in 2025, Source: Stone Mountain Capital Research, Barclays, HFRX & With Intelligence, January 2026 Cryptocurrency hedge funds experienced a challenging year in 2025, with benchmark returns ranging from approximately -6.3% to 3.9%, reflecting elevated volatility and sharp regime shifts within digital asset markets. As shown in Figure 10, our SMC Cryptocurrency Strategy Index underperformed major benchmarks in 2025 with a loss of 26.7%. Performance was heavily influenced by pronounced drawdowns in the second half of the year, as policy uncertainty, geopolitical shocks, and risk-off sentiment triggered rapid deleveraging and large liquidation events across the crypto ecosystem. While periods of strong momentum and high funding spreads created tactical opportunities, these were often offset by abrupt reversals and liquidity contractions. Overall, crypto hedge fund performance underscored the strategy’s high sensitivity to market structure and sentiment, with capital preservation and risk control proving more important than directional exposure in 2025. Figure 10: Performance of Stone Mountain Capital’s Cryptocurrency Hedge Funds and Benchmarks in 2025, Source: Stone Mountain Capital Research, HFRX & CoinMarketCap, January 2026 Multi-strategy hedge funds delivered one of the more consistent performance profiles in 2025, with relevant benchmarks returning between 9.4% and 10.2% over the year. As shown in Figure 11, our SMC Multi-Strategy gained 8.8%, vs benchmark. Our average hedge fund returned slightly less, largely weighed down by the difficult cryptocurrency ecosystem. A current high number of fixed income strategies compared to equity strategies also contributed to the comparably lower number than historically. Their diversified approach across asset classes and strategies allowed managers to dynamically allocate capital as market conditions evolved, smoothing returns and limiting drawdowns during periods of heightened uncertainty. The ability to reallocate risk internally, adjust exposures rapidly, and balance directional and relative-value opportunities proved particularly effective in a year characterised by frequent regime shifts. As a result, multi-strategy funds reinforced their appeal to institutional investors seeking stable, risk-adjusted returns with lower volatility than more concentrated strategies. Figure 11: Performance of Stone Mountain Capital’s Multi-Strategy Hedge Funds and Benchmarks in 2025, Source: Stone Mountain Capital Research, HFRI & With Intelligence, January 2026 Blockchain & Cryptocurrency Summary 2025 The cryptocurrency market experienced a strong but uneven trajectory in 2025, characterised by robust momentum in the early part of the year followed by periods of sharp drawdowns towards year-end. Market sentiment oscillated between optimism around adoption, liquidity conditions, and structural maturation, and caution driven by macro uncertainty, geopolitical risk, and episodic policy shocks. Overall, crypto markets demonstrated increased depth and resilience, with volatility remaining elevated but increasingly absorbed without systemic disruption. From a market-capitalisation perspective, the expansion over recent years highlights both the scale and cyclicality of the asset class. As shown in Figure 12, total crypto market capitalisation stood at approximately $800bn in January 2023, before accelerating to around $2.8tn by spring 2024 and nearly reaching $4tn towards the end of that year. In 2025, the market briefly surpassed $4.3tn in October, before retracing amid heightened volatility and risk repricing, ultimately closing the year just above $3tn - still representing a materially larger and more institutionally relevant market than in prior cycles. Figure 12: Cryptocurrency Market Capitalization in Billion USD Since January 2023, Source: CoinGecko, January 2026 Cryptocurrency markets entered 2025 with strong upward momentum, extending the rally from late 2024, before sentiment shifted around Donald Trump’s inauguration in January. What followed was a sustained decline, driven by a combination of “sell-the-news” dynamics around his pro-crypto stance and rising uncertainty linked to broader geopolitical tensions. In March, the announcement that the US would establish a strategic Bitcoin reserve helped stabilise Bitcoin’s drawdown, although this support did not extend meaningfully to the broader crypto complex. The corrective phase ultimately culminated around “Liberation Day” in early April, after which markets began to recover. Momentum accelerated again following the US Senate’s passage of the GENIUS Act in May, which proved particularly supportive for non-Bitcoin assets that had lagged earlier in the year. By late August, markets entered a largely sideways phase, before a sharp reversal in October, when renewed tariff threats against China triggered a broad risk-asset liquidation. Crypto markets were hit disproportionately hard, experiencing the largest liquidation event in the sector’s history, exceeding even the stress seen during the FTX and Terra/Luna episodes. The drawdown stabilised in early December, followed by a modest recovery in January 2026. These dynamics translated into a highly divergent performance profile across the crypto universe, as shown in Figure 13. Bitcoin ended 2025 down approximately 6%, materially outperforming the rest of the market and reinforcing its role as the most resilient asset within the ecosystem. Ethereum declined by around 11%, while Solana fell by roughly 34%, reflecting higher beta and greater sensitivity to liquidity shocks. The broader altcoin universe performed substantially worse, with other tokens down approximately 59% on average and the median token losing close to 79% over the year. Importantly, drawdown severity differed markedly: Bitcoin’s maximum drawdown was limited to around 20%, compared with roughly 60% for Ethereum and about 40% for Solana, underscoring the increasing bifurcation between Bitcoin and the rest of the crypto market in periods of stress. Figure 13: 2025 Cryptocurrency Market Performance and Key Milestones, Source: Pantera Capital, January 2026 Institutional participation in crypto continued to deepen in 2025, but in a more selective and risk-aware manner than in previous cycles. Capital increasingly concentrated in Bitcoin and, to a lesser extent, Ethereum, reflecting a preference for liquidity, regulatory clarity, and robustness during periods of stress. Market structure matured further, with regulated derivatives venues playing a growing role in price discovery and risk transfer, while improved custody, margining, and prime-brokerage solutions enhanced operational resilience. At the same time, the year’s extreme liquidation events underscored that crypto remains structurally more fragile than traditional markets, reinforcing a clear bifurcation between institutionally “ownable” assets and the long tail of speculative tokens. Decentralised finance in 2025 continued to mature, with Solana serving as a particularly illustrative case of the sector’s evolution from explosive growth to consolidation. As shown in Figure 14, daily active users on Solana surged at the start of 2024 and peaked at nearly 7 million in October of that year, driven by a sharp expansion in retail-led DeFi activity, memecoin trading, and high-throughput applications. Since then, usage declined steadily, stabilising in late summer 2025 at around 3 million daily active users - still structurally higher than the sub-1 million levels observed prior to early 2024. Patterns, such as a cooling of speculation, reflects the broader dynamics of 2025, followed by a more durable user base anchored in core use cases such as decentralised exchanges, perpetuals, and payments. While aggregate activity moderated, the persistence of a significantly higher baseline highlighted that DeFi adoption has not reversed but rather transitioned into a more sustainable phase with greater emphasis on functionality, cost efficiency, and real economic usage. Figure 14: Solana Daily Active Users Since December 2020, Source: Pantera Capital, January 2026 Tokenisation emerged as one of the most structurally significant developments in crypto during 2025, led by the rapid growth of tokenised US Treasuries and money-market funds. These products bridged traditional finance and on-chain infrastructure by offering regulated, yield-bearing instruments with improved settlement efficiency and composability. Institutional-grade issuers and custodians were central to this expansion, lending credibility and scale to the RWA segment. While still small relative to global capital markets, the steady uptake of tokenised RWAs highlighted crypto’s potential role as a settlement and distribution layer for traditional assets, with future growth likely driven by collateral use, balance-sheet efficiency, and integration into institutional workflows rather than retail speculation. Private Equity & Venture Capital Summary 2025 Private equity remained a core pillar of institutional portfolios in 2025, with the asset class continuing to expand in scale despite a more selective operating environment. According to PitchBook data, US private equity AuM stood at roughly $4tn as of Q1 2025, modestly higher than in 2024 and reflecting incremental growth rather than a step-change increase. Figure 15 shows the growth of private equity in the US in the past decade. At the same time, dry powder levels remained broadly unchanged at around $1tn, effectively flat since 2022, underscoring that capital availability was not the binding constraint for the industry. Throughout 2025, private equity activity was shaped by cautious deployment, disciplined underwriting, and a greater emphasis on portfolio management, as managers navigated valuation gaps, higher financing costs, and slower capital recycling. Against this backdrop, investor behaviour continued to evolve. Investors favoured allocation to large, established platforms, diversified buyout strategies, and managers with proven operational capabilities, while appetite for smaller, first-time, or highly specialised funds remained subdued. Geographically, capital gravitated toward the US and select core European markets, reinforcing a broader trend of consolidation by size, strategy, and region rather than broad-based expansion across the private equity landscape. Figure 15: US Private Equity AUM in Billion USD from 2015 to March 2025, Source: PitchBook, January 2026 Venture capital followed a more uneven trajectory in 2025, reflecting dynamics that diverged in several respects from broader private equity trends. According to PitchBook, US venture capital AuM continued to increase and stood at approximately $1.4tn at the end of Q2 2025, which was less supported by new capital formation and more by valuation effects in a narrow set of large, late-stage companies. Nonetheless, unlike private equity, venture capital’s AuM did not increase as much as PE’s and has mostly remained at stable levels since 2021, as shown in Figure 16. Similar to private equity, VC dry powder remained elevated and broadly stable, with available capital largely unchanged from prior years, but increasingly concentrated among a small number of large, established managers. Activity during 2025 was characterised by selective deployment and a pronounced skew towards scale, with capital disproportionately directed toward later-stage rounds and capital-intensive themes – most notably AI – while early-stage activity remained subdued. Investor behaviour mirrored private equity in several respects. Allocators favoured large, brand-name platforms, prioritised managers with the ability to lead or anchor sizeable rounds, and reduced exposure to smaller or emerging funds. From a geographic perspective, the US continued to dominate capital allocation, while activity in Europe and other regions remained more fragmented, reinforcing a broader consolidation trend within the venture capital ecosystem. Figure 16: US Venture Capital AUM in Billion USD from 2015 to June 2025, Source: PitchBook-NVCA Venture Monitor, January 2026 The private equity exit environment improved meaningfully in 2025, marking a clear inflection point after several years of subdued activity. According to PitchBook, US PE exits reached an aggregate value of $728bn, representing a 90% increase in exit value and a 17% rise in exit count YoY, making 2025 the second-strongest exit year on record after 2021. This recovery, however, remained highly concentrated, with mega-exits accounting for nearly 80% of total exit value, indicating that liquidity was primarily realised at the upper end of the quality and size spectrum. Exit momentum strengthened notably in the second half of the year, supported by improving financing conditions and a gradual reopening of the IPO market, although activity remained vulnerable to episodic disruptions. Despite the progress, exit volumes were still insufficient to fully unwind the accumulated inventory of ageing portfolio companies, leaving distributions to LPs constrained and reinforcing the continued use of sponsor-to-sponsor sales, dividend recapitalisations, and continuation vehicles as alternative liquidity pathways. Overall, 2025 represented a material recovery but not a full normalisation of the private equity exit environment. The venture capital exit environment in 2025 remained constrained and highly selective, particularly in the US, and continued to lag the recovery seen in private equity. Exit activity improved modestly compared with 2024 but stayed well below historical norms, with liquidity largely generated by a small number of large transactions involving mature, late-stage companies – most notably in AI-related sectors – rather than a broad-based reopening of exit markets. IPO activity remained limited and accessible only to the highest-quality issuers, while trade sales and secondary transactions continued to account for the majority of exits, underscoring the ongoing difficulty in realising value across the wider venture universe. European venture markets followed a similar pattern, with headline exit values supported by isolated mega-exits but little improvement in underlying exit breadth, reinforcing that 2025 did not yet deliver a structural reset in venture capital liquidity despite incremental progress at the top end of the market. Valuations remained a central and differentiating theme across both private equity and venture capital in 2025, reflecting a gradual but incomplete adjustment to higher interest rates and a more selective capital environment. In private equity, valuation expectations continued to normalise, with entry multiples stabilising but remaining below the peaks observed in 2021–2022, as sponsors prioritised cash-flow resilience and underwriting discipline over multiple expansion. In venture capital, valuation dynamics were far more polarised. While early- and mid-stage valuations remained under pressure, late-stage valuations rebounded sharply, driven by large AI-focused financings and mark-ups in a narrow group of category leaders. European data broadly corroborated this bifurcation, with overall valuation levels subdued but headline resilience supported by a small number of outsized transactions. Taken together, 2025 valuation trends underscored a shift toward greater dispersion, with capital concentrating around scale, quality, and strategic relevance rather than lifting the market uniformly. Valuation discipline in 2025 translated into a measured and selective recovery in private equity deal activity rather than a broad-based rebound. As shown in Figure 17, in the US, PE transaction volumes and values improved compared with 2024, but activity remained concentrated in assets where buyer and seller expectations had converged, supported by more conservative leverage and a renewed focus on cash-flow quality. Europe followed a similar but slower path, with tighter financing conditions and lingering valuation gaps keeping deal activity biased toward the mid-market rather than large-cap transactions. Figure 17: Private Equity & Venture Capital Deal Activity in the US and Europe from 2015 to 2025, Source: PitchBook, January 2026 In venture capital, deal activity rebounded primarily in value, not breadth. In the US, higher aggregate deal value in 2025 was driven by a limited number of large late-stage rounds – predominantly in AI – while overall deal counts remained subdued, reflecting continued pressure on early- and mid-stage valuations. Albeit slower, European VC markets broadly mirrored this pattern, with headline deal values supported by isolated large transactions but limited improvement in underlying activity across the wider ecosystem. Fundraising remained one of the most challenging aspects of private markets in 2025, despite stabilising valuations and improving deal activity. As shown in Figure 18, fundraising collapsed in 2025. In the US and Europe, fundraising declined to below $400bn after remaining firmly above $500bn since 2021. It also shows a worrying trend of declining funds. In the US, just above 300 funds raised capital compared to more 1,000 during its peak in 2022. In Europe, funds raising fell below 150 – the lowest in this decade. Overall, capital raising was constrained primarily by portfolio-level effects rather than a lack of long-term appetite. Subdued exit activity limited distributions to LPs, prolonging the denominator effect and extending fundraising timelines. As a result, fundraising was highly concentrated, with large, established managers continuing to secure commitments – albeit often over longer cycles – while smaller, first-time, or more specialised funds faced materially tougher conditions. European PE fundraising followed the same pattern but remained more subdued overall, reflecting weaker exit momentum and a more cautious LP base. Venture capital fundraising was even more pressured in 2025. Despite a rebound in deal values and valuations at the top end of the market, particularly in AI, fundraising remained weak as persistent negative net cash flows since 2022 weighed heavily on LP willingness to commit to new vintages. According to PitchBook, capital formation was increasingly skewed toward a small number of large, brand-name VC platforms, while emerging managers and early-stage funds struggled to raise capital. Overall, fundraising dynamics in 2025 reinforced a clear bifurcation across both PE and VC, with scale, track record, and liquidity visibility emerging as the decisive factors for successful capital raising. Figure 18: Private Equity Fundraising & Fund Count in the US and Europe from 2015 to December 2025, Source: PitchBook, January 2026 Performance across private equity and venture capital in 2025 reflected a stabilisation phase rather than a full cyclical recovery, with returns increasingly driven by underlying portfolio fundamentals rather than multiple expansion. According to Cambridge Associates, US private equity and venture capital benchmarks delivered positive but more moderate returns in the first half of 2025, as valuation mark-ups slowed and performance dispersion widened across vintages and strategies. This is also shown in Figure 19, in which the past three years have shown a considerable underperformance, compared to longer-dated historical average performances. In private equity, returns were supported by earnings growth, operational improvements, and disciplined balance-sheet management, while leverage and valuation tailwinds played a more limited role than in prior cycles. Venture capital performance remained far more uneven. Headline returns benefited from valuation uplifts in a narrow set of large, late-stage technology and AI-driven companies, while the broader VC universe continued to lag amid muted exits and pressure on earlier-stage valuations. Overall, 2025 performance dynamics underscored a shift toward more differentiated, fundamentals-driven outcomes across both PE and VC, reinforcing the importance of manager selection and vintage discipline for institutional investors. Figure 19: Private Equity and Venture Capital Returns across a variety of Time Horizon (Data as of Q2 2025), Source: Cambridge Associates, January 2026 Private Debt Summary 2025 Private debt continued to consolidate its position as a core institutional asset class in 2025, with industry scale expanding further despite a more selective credit environment. Assets under management reached new highs over the course of the year, underpinned by sustained institutional inflows, ongoing bank retrenchment from corporate lending, and the appeal of private credit’s income profile in a still-elevated rate environment. While growth moderated compared with the rapid expansion seen in 2020–2022, the asset class nonetheless remained on a clear upward trajectory, reflecting its structural role in financing the real economy. US-focused private credit strategies continued to account for the largest share of AuM, but European private debt also grew steadily, supported by increasing adoption among insurers, pension funds, and multi-asset allocators. Overall, 2025 reinforced private debt’s transition from a cyclical alternative to a systemically important segment of global credit markets, with AuM growth driven less by opportunistic yield capture and more by durable, long-term capital allocation decisions. Capital formation in private debt remained robust – albeit declining from prior years – in 2025, even as fundraising conditions became more selective and investor scrutiny intensified, as shown in Figure 20. According to PitchBook, aggregate dry powder remained at historically elevated levels, broadly stable compared with recent years, underscoring that capital availability was not a limiting factor for the asset class. Instead, the persistence of high dry powder reflected disciplined deployment amid tighter underwriting standards and a more cautious borrower environment. Fundraising activity continued to favour large, established managers with scale, sector expertise, and demonstrated credit performance, while smaller or first-time vehicles faced longer fundraising cycles. Overall, the combination of resilient capital formation and elevated dry powder highlighted a market characterised by ample lending capacity, but one increasingly defined by selectivity, structure, and credit quality rather than aggressive capital deployment. Figure 20: US Private Debt Capital Raised by Type in Billion USD from 2008 to September 2025, Source: PitchBook, January 2026 The macro and rate environment in 2025 remained broadly supportive for private debt, albeit with increasing dispersion across borrowers and structures. Policy rates stayed elevated for much of the year before shifting toward gradual easing, keeping all-in yields attractive while improving interest coverage for higher-quality borrowers. The predominance of floating-rate structures continued to benefit lenders, allowing portfolios to maintain strong income generation even as rate volatility moderated. At the same time, slower economic growth and lingering cost pressures exposed weaker capital structures, reinforcing the importance of underwriting discipline and covenant protection. Overall, the 2025 macro backdrop favoured private debt strategies able to balance yield capture with credit selectivity, as the transition from a rate-driven return environment to a more fundamentals-driven credit cycle became increasingly evident. Credit quality became a central focus in private debt markets in 2025, as the prolonged period of higher base rates began to test borrower balance sheets more meaningfully. As shown in Figure 21, default rates edged higher from the exceptionally low levels of previous years, but remained contained in absolute terms, reflecting conservative underwriting, senior-secured positioning, and active portfolio management by lenders. Stress was concentrated among smaller, more highly levered borrowers and in cyclical sectors, while larger, sponsor-backed companies with stable cash flows generally maintained adequate interest coverage. Covenant breaches and amendments increased modestly, signalling a normalisation of credit conditions rather than a systemic deterioration, and provided lenders with opportunities to reprice risk or strengthen terms. Overall, 2025 reinforced private debt’s transition into a more discriminating phase of the credit cycle, where manager skill in credit selection, structuring, and workout capabilities became a key determinant of outcomes. Figure 21: Private Credit Default Rates from June 2017 to June 2025, Source: S&P Global Ratings, January 2026 Private debt delivered solid and resilient performance in 2025, with median net IRRs close to 10%, reaffirming the asset class’s role as a stable income and return generator for institutional portfolios. Beneath this headline figure, performance dispersion was pronounced, as shown in Figure 22. Lower-quartile funds generated returns closer to 3%, while upper-quartile managers achieved IRRs of up to 14%, highlighting the growing importance of manager selection. This widening spread reflected differences in underwriting discipline, portfolio construction, sector exposure, and workout capabilities, as well as varying sensitivity to borrower stress as higher rates filtered through balance sheets. Overall, 2025 reinforced that private debt returns were no longer driven primarily by beta or rising base rates, but increasingly by credit selection and structuring skill, with top-performing managers able to materially outperform the median despite a broadly supportive yield environment. Figure 22: Private Credit Returns: Bottom Quartile, Median and Upper Quartile IRRs from 2020 to September 2024, Source: Morgan Stanley, January 2026 Direct lending remained the cornerstone of private debt performance in 2025, delivering the most consistent and predictable return profile across the credit spectrum. Performance benefited from senior-secured positioning, floating-rate structures, and conservative underwriting, which helped preserve income while limiting drawdowns as higher rates filtered through borrower balance sheets. Credit stress emerged selectively – primarily among smaller or more leveraged borrowers – but was largely manageable through covenant protections, amendments, and proactive portfolio management. As a result, dispersion within direct lending widened modestly, but the strategy continued to anchor institutional allocations due to its combination of yield stability and capital preservation. Mezzanine and junior capital strategies experienced more uneven outcomes in 2025, reflecting their higher sensitivity to earnings volatility and refinancing risk. While elevated base rates supported headline returns, pressure on cash flows increased default and restructuring risk in weaker credits, leading to greater dispersion between managers. Successful strategies were characterised by disciplined deployment, strong sponsor relationships, and the ability to reprice risk or enhance economics through tighter terms and equity kickers. Distressed and special situations credit gained traction in 2025, though activity remained selective rather than systemic. Rising defaults, covenant breaches, and refinancing gaps created a growing opportunity set, but the absence of a broad-based credit downturn limited volume. Returns were therefore driven by idiosyncratic situations, complex capital structures, and manager expertise in restructurings and workouts, setting the stage for increased relevance as the credit cycle matures. Real Estate Summary 2025 Real estate in 2025 marked a clear transition point in the cycle, shifting from a period of sharp repricing toward one of stabilisation and gradual normalisation. Following the valuation reset of 2022–2024, capital values broadly bottomed out over the course of 2025, with returns increasingly driven by income rather than further cap-rate compression. Higher interest rates continued to constrain leverage and transaction volumes, but easing inflation and improved rate visibility reduced uncertainty and narrowed bid–ask spreads, allowing capital markets activity to slowly recover. Across regions, the market moved away from a uniformly defensive stance toward a more selective re-engagement, characterised by disciplined underwriting and a focus on assets with durable cash flows. Overall, 2025 was less about recovery momentum and more about re-establishing a sustainable footing, setting the stage for a more differentiated, fundamentals-driven phase of the real estate cycle. As shown in Figure 23, financing conditions in real estate remained tight but improved marginally during 2025, reflecting a shift from acute stress toward cautious normalisation. Lending standards stayed conservative, with lower leverage and a strong focus on asset quality and sponsor strength, while higher all-in borrowing costs continued to weigh on highly levered assets. As bank lending remained selective, private credit increasingly filled financing gaps, particularly for transitional assets. Overall, financing conditions in 2025 supported market stabilisation rather than renewed expansion, reinforcing disciplined capital structures and income resilience. Figure 23: Cap Rates by Sectors from Q1 2022 to Q3 2025 and Forecasts Until Q4 2026, Source: CBRE Research & CBRE Econometric Advisors, January 2026 Capital markets activity improved gradually in 2025, but remained well below pre-2022 levels, underscoring the market’s cautious re-entry phase rather than a full recovery. Transaction volumes stabilised as bid–ask spreads narrowed and pricing expectations converged, with liquidity returning first to high-quality assets offering durable cash flows. The recovery was uneven across regions and sectors. The US led in terms of transaction momentum, while Europe lagged but showed signs of bottoming, supported by increased activity in prime logistics, living, and selectively repriced office assets. Overall, transaction activity in 2025 was driven less by opportunistic capital and more by fundamentals-based execution, marking a transition from price discovery toward selective deployment. Real estate performance in 2025 reflected the stabilisation phase described above, with total returns turning positive again but remaining modest and clearly income-led. As shown in Figure 24, total return of real estate is still hovering well below its average of the past decade, but the industry is recovering steadily. Following the sharp valuation correction of prior years, capital values broadly flattened over the course of 2025, while rental income became the dominant driver of returns across most regions and sectors. As a result, performance dispersion narrowed at the aggregate level but widened across property types, with resilient sectors such as living, logistics, and data centres delivering meaningfully stronger total returns than structurally challenged segments, most notably parts of the office market. The US generally outperformed Europe, benefiting from earlier repricing, stronger occupier fundamentals in growth sectors, and a faster improvement in capital market liquidity. Figure 24: Rolling 12-Month Returns of Real Estate, Levered Real Estate & Infrastructure from June 2009 to June 2025, Source: MSCI Global Properties, January 2026 Residential assets remained among the most resilient real estate strategies in 2025, benefiting from structural housing undersupply, stable demand, and relatively strong rental growth. While affordability constraints moderated rent increases compared to earlier years, cash flows remained durable, supporting income-led returns. Investor interest stayed robust, particularly for well-located assets in supply-constrained markets, reinforcing the sector’s role as a defensive core allocation. Logistics continued to outperform most other sectors in 2025, supported by long-term demand drivers such as e-commerce penetration, supply-chain reconfiguration, and nearshoring trends. Although rental growth normalised from peak levels and development pipelines slowed, fundamentals remained strong, with low vacancy rates and stable tenant demand. Capital concentrated in prime assets, reflecting investors’ preference for scalable, income-secure exposure. Office markets remained the most challenged segment in 2025, characterised by pronounced bifurcation rather than uniform weakness. High-quality, well-located, and energy-efficient assets demonstrated improving occupancy and tenant demand, while secondary stock continued to face structural pressure from changing workplace patterns and rising obsolescence. As a result, investment activity was selective, with capital targeting repricing opportunities rather than broad exposure. Retail real estate showed continued stabilisation in 2025, particularly in convenience-based and necessity-driven formats. Strong tenant sales, disciplined supply, and limited new development supported improving fundamentals, while prime high-street and dominant shopping centres attracted renewed investor interest. The sector’s recovery remained uneven, but 2025 confirmed retail’s shift from a structurally challenged narrative toward a more income-stable, selective opportunity set. Hotels benefited from robust travel demand in 2025, with leisure travel remaining strong and business travel continuing its gradual recovery. Operating performance improved across most markets, translating into higher revenues and cash flows, although rising labour and operating costs limited margin expansion. The sector attracted interest from opportunistic and value-add investors, reflecting its sensitivity to economic cycles and potential for operational upside. Data centres remained a standout growth segment in 2025, driven by accelerating demand from cloud computing and artificial intelligence. Limited supply, high capital intensity, and long-term leasing structures supported strong pricing power and investor appetite, though entry valuations remained elevated. Other alternative sectors, such as life sciences and self-storage, experienced more mixed outcomes, with performance increasingly dependent on location, asset quality, and operating execution. STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Tallinn in Estonia and Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 14th June 2025, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 62.9 billion. US$ 48.8 billion is mandated in hedge funds and US$ 14.1 billion in private assets and corporate finance (private equity, venture capital, private debt, real estate, fintech). Stone Mountain Capital has arranged new capital commitments of US$ 2.03 billion across more than 25 hedge fund, private asset and corporate finance mandates and has been awarded over 130 industry awards for research, structuring and placement of alternative investments. 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