The 2025 Fiscal Year (FY) saw generally strong performance, with gains of approximately 11% for a diversified portfolio, building off of gains of nearly 9% for the previous fiscal year.
Global equities continued to run, with non-U.S. equities outperforming U.S. equities for the first time since FY 2017 on the back of a weakened dollar, strong returns in Europe, and a dramatic rebound in China (+33.8%). U.S. markets posted solid gains, driven largely by mega cap tech firms benefiting from AI momentum. Despite early strength, trade tensions and tariff fears sparked sharp volatility, though markets recovered following policy reversals. Domestic growth equities outperformed value during the year, and large caps outpaced small caps.
Hedge funds performed well, with event-driven and long/short equity funds leading gains. Distressed credit strategies capitalized on unique opportunities, including the recovery of FTX assets. Merger arbitrage also contributed, while macro funds showed mixed results. Increased leverage and positioning adjustments by long/short managers reflected their active response to market volatility. Private credit continued to grow as institutional investors embraced its diversification and yield potential.
Fixed income markets benefited from early Fed rate cuts totaling 100 bps, resulting in yield curve steepening and positive returns across most fixed income sectors. Credit spreads tightened, lifting both high yield and investment-grade returns. Real assets also performed well – gold surged 41.5%, while infrastructure and energy infrastructure posted double-digit gains. Real estate rebounded moderately despite stress in office CRE, with signs of future opportunity emerging.
Global Equities
The equity markets continued their rally in FY 2025. The S&P 500 Index, a proxy for U.S. equities, gained 15.2% during the period, while the broader Russell 3000 Index gained 15.3%.
The fiscal year got off to a strong start, with the S&P 500 registering gains in four out of the first five months. Investor sentiment reached a crescendo in the aftermath of the November election on optimism that a Republican administration would implement market-friendly policies.
However, in four of the five subsequent months, the index posted drawdowns as sentiment pulled back and concerns over trade policy surfaced.
President Trump’s April 2nd tariff announcement particularly spooked investors; over the following four trading days, the S&P 500 sold off over 12% – which put the index within striking distance of entering a bear market.
When the administration walked back the initial announcement on April 9th, sentiment shifted sharply; the S&P 500 gained 9.5% for the day, its best one-day showing since October 2008.
With investors gaining confidence that the worst-case scenario for tariffs appeared to be off the table, the index rallied strongly in May and June, reaching all-time highs.
Mega cap technology stocks continued to drive performance, with AI as the main theme. NVIDIA (+27.9%), Broadcom (+73.6%), and Meta Platforms (+46.9%), all of which are heavily invested in AI, were the three largest contributors to broad market returns. On the other hand, Apple (−2.1%) and Alphabet (−2.8%), companies for whom AI may be a competitive threat, experienced declines in their share prices.
The mega cap tech outperformance lifted growth stocks over their value counterparts and large caps over small caps for yet another fiscal year. The Russell 3000 Growth Index gained 16.9% versus 13.3% for the Russell 3000 Value Index, while the Russell 1000 Index gained 15.7% versus a 7.7% advance for the Russell 2000 Index.
Financials (+29.5%) were the best performing sector during the year, benefiting from investor optimism around a more benign regulatory environment. Communications services (+24.1%) and utilities (+22.9%) also posted strong gains, with both sectors benefitting from tailwinds related to AI adoption.
Healthcare (−5.2%) and energy (−3.7%) were the only sectors to finish the fiscal year in the red. Drawdowns from blue chips UnitedHealth (−37.6%) and Eli Lilly (−13.3%) weighed on the healthcare sector, while energy sold off due to lower oil prices.
Foreign equities enjoyed an unexpected resurgence during the year, as the developed and emerging markets rose 17.7% and 15.3% respectively, and the MSCI ACWI ex-U.S. (+17.7%) bested domestic equities over the fiscal year for the first time since 2017. The election of President Trump sparked a rally in the U.S. dollar (USD) and sell off in foreign assets in the closing months of 2024 amidst expectations of global trade disruption and American exceptionalism.
Despite entering 2025 with a challenged outlook, non-U.S. equities have been resilient through the first half of the calendar year. In the developed world, Europe more than recovered fourth quarter losses and closed the fiscal year up 18.4% on the prospects of increased defense spending and fiscal support. Returns within emerging markets were boosted by the recovery of China (+33.8%). Chinese equities, which appeared to be left for dead in early 2024, were revived by President Xi’s renewed commitment to the domestic economy and support of private enterprise.
Overseas equities were boosted further by weakness in the USD (−8.5%), as the first half of 2025 marked the worst start for the greenback since 1973. Trade uncertainty, inflation concerns, and rising government debt have all weighed heavily on the U.S. currency.
Fixed Income
At its June 2024 meeting (the end of fiscal year 2024) the Fed was dovish and expressed its expectation to cut interest rates by 100 bps in calendar year 2025, to 4.1%, and by another 100 bps in calendar year 2026, to 3.1%. A growth scare led to front-loaded rate cuts with −50 bps in September 2024, −25 bps in November 2024, and −25 bps in December 2024, cumulatively a 100 bps reduction in rates during the first half of fiscal year 2025.
Entering the second half of the fiscal year, the Fed has grown much more cautious. It remains wary of a stagflationary impulse—slowing growth, uptick in unemployment, and higher inflation—from tariff and trade uncertainty, in particular on the potential inflationary impact. As a result, the Fed indicated it believes there will only be two rate cuts in calendar year 2025 and one cut in calendar year 2026. Markets, on the other hand, seem more concerned about growth and unemployment and are positioned for as much as three rate cuts in both 2025 and 2026.
Over the course of the fiscal year, the yield curve underwent a dramatic steepening. The front end of the curve out to the 2-year maturity dropped a little over 100 bps due to the aforementioned rate cuts. Yield declines were more modest at the further ends of the curve, with the 5-year dropping 55 bps and the 10-year declining 14 bps. At the 30-year point of the curve, yields rose 25 bps –reflecting concerns about the deficit impact of the GOP’s “One Big Beautiful Bill.”
As a result of the change in the shape of the curve, Treasuries maturing over the next 5-10 years gained 6.6% and were the best performing part of the Treasury markets during the fiscal year. Treasuries in the 1-3 year maturity range gained 5.7% and Treasury bills gained 4.8%. Despite the increase in 30-year yields, long Treasuries eked out a 1.6% gain for the fiscal year.
Credit markets benefited from falling yields and tighter credit spreads over the course of the fiscal year. High yield bonds experienced a 19 bps drop in spreads, to 290 bps over comparable Treasuries, while investment-grade corporate spreads fell 11 bps, to 83 bps. This fueled a 10.3% rise in high yield and a 6.9% gain in investment-grade corporates. Outside of ABS, securitized also saw tighter spreads, which led to a 7.7% gain in CMBS and a 6.5% rise in Agency MBS. Despite no change in spreads, ABS increased 6.3% during the fiscal year.
Flexible Capital
Hedge funds had a strong year overall, as the HFRI Fund Weighted Composite Index was up 8.5% in fiscal year 2025. Particular strength was found in the more directional event-driven and long/short equity funds that benefited from the rallies in equity and credit markets. The HFRI Equity Hedge Index gained 9.6% during the fiscal year and the HFRI Event Driven Index was up 9.6%. Widely held names in the power/utility space such as Talen Energy and Constellation Energy sat alongside consumer tech positions such as AppLovin and Carvana as top contributors.
However, it was also a good year for distressed credit and merger-arbitrage managers, who generated strong alpha despite a challenging market environment. The HFRI ED: Distressed/Restructuring Index gained 8.1% during the fiscal year. One of the largest contributors to credit manager returns was FTX, the defunct crypto trading platform. FTX claims soared in value as the company’s underlying assets, which included venture capital stakes, real estate, cash, and crypto assets, were monetized and proceeds were distributed to investors at hefty profits. Merger and arbitrage (M&A) activity remained modest, but has shown signs of life in recent months. The successful completion of the CapitalOne/Discover deal generated strong profits for arbitrage investors and has opened the door for other deals to move forward.
Macro manager results were mixed, but increased uncertainty related to tariffs and shifts in global central bank behavior has created a plethora of trading opportunities for managers in this space. The HFRI Macro Index was the only major hedge fund index with a negative return through June, down 1.3% over the last twelve months. Within the macro strategy, the Macro Discretionary Index gained 10.3%, while the Macro Systematic Index lost 10.7% – showing the disparity between programmatic trend-following and actively managed strategies.
Fundamental long/short hedge funds moved exposures around throughout the year but ended June with gross and net leverage rising to near three-year highs across the industry. Gross leverage, which has generally been on a steady climb for several quarters, fell briefly during the sell-off in March and early-April 2025 but recovered as funds switched from selling at record levels in March to strong buying over the next three months. Net leverage fell sharply in March, briefly hitting 10-year lows as funds sold long exposure and added meaningfully to shorts during the sell-off. After markets bottomed in early April, hedge funds added back a lot of their long exposure and have been trimming shorts as markets continued to rally off those lows. This illustrated managers’ willingness to increase risk as volatility subsided after the sharp drawdown.
Investors continued to shift capital into private credit, taking advantage of stubbornly elevated interest rates. Private credit has grown from a niche industry to an important part of institutional portfolios, with the asset class expanding beyond senior corporate lending to include various other forms of collateral and loan structures.
Private Equity
Private equity markets experienced a tale of two halves during fiscal year 2025, with early momentum giving way to significant headwinds as tariff uncertainty and macroeconomic volatility weighed on dealmaking and exit activity. Despite these challenges, the asset class demonstrated resilience and adaptation, continuing to evolve with new structures gaining traction and institutional investors maintaining their long-term commitment to the space.
The private equity landscape in fiscal year 2025 (ending March 31) showed mixed but improving performance across strategies. Venture returns moved positive at 4.78% after several years of negative returns, though the three-year performance remained negative at -4.59%. Growth equity emerged as the strongest performer during the period at 7.76%, followed by buyout strategies at 6.8%. This performance recovery provided some relief to limited partners who had endured multiple years of challenging returns.
Private equity fundraising faced headwinds during fiscal year 2025, with calendar year 2025 activity on track to reach approximately $300 billion—representing the weakest fundraising since 2020. This decline reflects the culmination of multiple challenging years, with fundraising activity slowing throughout 2024 and continuing into 2025. The fundraising process has become increasingly concentrated among established managers, as LPs reduce their GP count amid liquidity constraints and prefer proven relationships.
Several notable mega-fund closes occurred in the first half of 2025, including final closes from Thoma Bravo, Blackstone, Insight Partners, and PSG, which collectively raised $61.3 billion and represented 44.6% of total fundraising through mid-year.
A significant structural challenge has emerged in the form of a growing “maturity wall,” with 54.7% of all active PE funds globally now six years or older—past the theoretical halfway point of their lifecycle. This represents an increase from 52.2% at the end of 2024, as more funds from the 2019 vintage entered their harvesting stage.
The challenge is particularly acute given that 2019 marked the beginning of a PE fundraising boom, meaning more funds are entering their harvesting stage than are completing full liquidation. According to Pitchbook, there are currently 1,420 funds that will need to be wound down in 2025-2026 or secure extensions, while another 1,649 funds will reach their 10-year terms in the following two years.
The extended hold periods necessitated by limited exit opportunities led GPs to intensify their operational value creation efforts. Many firms focused on efficiency improvements, technology adoption, and strategic repositioning in an effort to enhance portfolio company performance during extended ownership periods.
Looking forward, the private equity industry’s dry powder provides important deployment capacity once market conditions stabilize. However, the combination of limited exit activity, fundraising challenges, and macroeconomic uncertainty suggests a continued period of adjustment.
Real Assets
Real assets delivered positive returns led by gold (+41.5), infrastructure (+21.4%), and energy infrastructure or MLPs (+13.2%). Gold continued its strong performance, returning 41.5% on strong central bank buying, de-dollarization trends, and increasing concern with U.S. debt levels. Infrastructure equities, particularly utilities, benefited from accelerating power demand driven by the growth in AI related data center demand, the electrification of fleets, industry and manufacturing, and a growing economy. Transportation benefited from significant investment as well as growth in demand, while industrial related infrastructure benefited from reshoring trends, and the adoption of technology, including AI in manufacturing.
Finally, energy infrastructure (including pipelines and LNG facilities) benefited from increased natural gas demand (assets earn revenues on volumes moved), strong cash flow yields, and natural gas prices (+42.9%). Private infrastructure strategies, particularly lower middle-market groups that take a private equity-like approach to the space, appear positioned to capitalize on strong secular demand trends as well as a large strong buyer pool seeking exposure to the asset class.
Spot prices for WTI crude oil declined 20.1% to finish the fiscal year at $65.1per barrel as OPEC began reducing production cuts, supply remained elevated, and global growth concerns weighed on demand. Resource equities managed a 3.6% return for the fiscal year. Clean energy stocks declined by –0.2%, but the muted returns mask a significant decline in the second half of 2024 and a strong rally in 2025, (16.0%) despite the prospect of significantly scaled back federal support for renewables.
Global REITs delivered an 11.2% return for the fiscal year, as headlines highlighting stress and distress in the CRE sector continued. Defaults for office loans reached an all-time high of 11.08% in June 2025. While the office sector was the primary source of underlying distress, default rates also increased in other sectors, such as multifamily, as many assets were bought at peak pricing and levered up with floating rate debt prior to the rapid rise in interest rates. Despite the ongoing rationalization of legacy assets with broken capital structures, the green shoots of a recovery have continued to emerge, as space demand across the CRE industry robust and new supply has declined and is expected to fall sharply in 2026 and 2027. Historically, downturns in CRE have created a target rich opportunity set, producing some of the best entry points for both private real estate vintages and REITs.
Elections—both in the U.S. and abroad—remain as an important risk consideration. Long-term yields rose following the June 27, 2024 presidential debate, as markets placed higher odds on a Trump victory and his policy proposals were widely believed to be inflationary. The disinflationary trend seemed to resume as the fiscal year came to an end, but the Fed has maintained a patient stance on interest rates, while markets are eagerly anticipating the start of an easing cycle. Equity breadth is as narrow as it’s ever been, and the rally could be at risk if optimism over AI and cloud computing wanes.
Credit spreads are below historical averages and default activity remains benign but is expected to rise. Another important risk is the rise of distressed exchanges, which can lead to principal haircuts and subordination for investors. Given the repricing of
CRE assets, increasing debt availability, solid fundamentals
across many sectors, and a sharp decline in new starts, green shoots may continue to emerge for the cyclical asset class, which, combined with resilient space demand, could bode well for fundamentals in 2025 and 2026.
Infrastructure equities (+7.0%) moved higher despite more tepid rate cut expectations. The midstream energy sector buoyed returns and strong tailwinds across the power generation, energy transition, utility, and digital sectors continued to benefit the asset class. Growth in power demand is being driven by the electrification of vehicle fleets, the decarbonization of existing sources of energy, increased manufacturing activity, and the explosive growth in AI—which is expected to increase power demand for data centers.
Clean energy equities fell sharply (−25.7%) on pared back interest rate cut expectations, oversupply of solar components principally from China, and concern that a change in administration in the U.S. could result in less Federal support for the sector. The public clean energy universe includes a mix of renewable utilities, solar component manufacturers and suppliers, wind equipment and construction firms, and venture-like technology companies.
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