Are private assets emerging from their recent difficult years?
December 04, 2025
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4 min
Jon Martin
CEO
AEW Capital Management
Philippe Zaouati
Founder and CEO
Mirova
Eric Deram
CEO
Flexstone
Private assets often provide two main benefits to investors: diversification and a potential boost to returns. However, over the last three years many private asset classes have not quite delivered on this expectation. A very different global macroeconomic landscape has brought a multitude of challenges including higher interest rates, higher inflation and more volatile geopolitics. And all of this while private assets strategies are opening up to retail investors for the first time. Against this backdrop our expert private assets panel gathered at Natixis Investment Managers’ Japan CEO Symposium to discuss where investors should turn to.
Investing in private assets is harder today
Jon Martin, CEO of AEW Capital Management, says real estate investing has become much harder in recent years: “If you look back at the last ten years, when we had a falling interest rate environment that went close to zero, constructing your real estate portfolio was really about sector allocation. If you had the right sector allocation, especially in industrial and housing, you were going to generate outsized returns. It was a pretty simple formula.” However, in this new economic environment he says simple sector allocation is no longer enough. He thinks real estate investors not only need to pick the right sectors, but also the right assets. He also suggests investors should focus on income, as he believes that is where most of the returns will come from in the medium term.
For Philippe Zaouati, Founder and CEO of sustainable investment specialist Mirova, recent years have also been challenging. While there has been a much publicised backlash against sustainable investing, led by US President Donald Trump, he says that investor expectations have not changed that much at the base level. Investors still want to invest in good assets with good returns and sustainability is just one lens to view the economy. While each geography is slightly different, he says that many institutional investors, like pension funds and major insurance companies, are still adhering to their climate objectives.
Private equity has not had it easy either, according to Eric Deram, CEO of Flexstone: “While private equity (PE) has overperformed liquid equities by three to five per cent per year over the last 5,10,20 to 25 years, this has not been the case over the last four or five years.”
Asset selection and manager knowledge are key to returns
The increased capital which has flowed to private assets in recent years, as well as increasing participation from retail investors, are changing the sector’s market dynamics and introducing new ways to invest and new assets to invest in.
Smaller PE companies, where Flexstone specialises, have avoided many of the issues that large-cap PE firms have been struggling with according to Eric Deram. He says this is partly due to smaller companies being less dependent on macroeconomic factors and also because PE managers have more levers to pull to improve smaller companies’ operating performance. As for the well publicised difficulties that PE firms are finding in exiting their positions, and so returning capital to investors, this has less been the case for Flexstone: “In the small and mid-markets, less than 5% of our exits are linked to IPOs…approximately 40% of our exits are to corporate buyers, and around 60% come from larger funds which tend to have a significant amount of dry powder and invest consistently.” While these characteristics have benefitted small-mid cap PE in recent years, Deram is quick to emphasise that while there are greater opportunities in this part of the market, due to literally hundreds of thousands of companies to invest in, there are risks too. Smaller companies can be more fragile than larger ones, so asset and manager selection remains critical.
Jon Martin acknowledges that property values have fallen following the rise in interest rates in 2022. However, he says the situation has changed recently: yields are returning to levels AEW Capital Management has not seen for 10-15 years, and forward returns are now looking very attractive. In short, according to Martin, real estate is “probably better situated than it has been in many years”. AEW Capital Management is also changing its focus, away from office, industrial, retail, and housing and more towards sectors like cold storage, self-storage, student and senior housing, and data centres.
Philippe Zaouati says that if he had to pick one asset class that really benefits most from a sustainable perspective it would be infrastructure: “We have been investing in infrastructure for over 15 years, particularly in energy transition infrastructure and it is a long-term investment where you really need to consider resilience and the long-term impact on sustainability.” Energy transition infrastructure has also changed significantly in recent years. Whereas it used to only include renewable energy it now encompasses: “energy usage, new fuels like hydrogen and sustainable aviation fuels, energy efficiency, mobility and batteries.” He says this diversity of investment options, as well as the long-term nature of these investments, mean that with careful asset selection investors can get stable returns for 12 to 15 years.
While private assets have underwhelmed some investors in recent times, our expert panel believes the future looks bright. The rapidly evolving nature of private assets, combined with the expected influx of new investors, and the expanding number of investment options all make it more likely that private assets can fulfil their promise of higher potential returns and greater diversification, as long as investors pay careful attention to asset and manager selection.
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