PUBLICATION: Rede Liquidity Index 1H 2025

Welcome to the 15th edition of the Rede Liquidity Index (RLI), looking at institutional investor sentiment towards Private Equity
(“PE”) in the first half of 2025. The latest data shows a fifteen-point fall in LPs’ intention to allocate capital to Private Equity funds,
resulting in an overall RLI score of 45. This means that, on average, LPs expect a decrease in their deployment of capital to PE
funds over the next 12 months.

Key findings from the report:

1. RLI score declines to lowest level since 2022, signalling expectations of
   a contraction in fundraising

   After a period of sustained momentum, the RLI score has now dropped to 45, signalling that investors contemplate a contraction in fundraising over coming months. This is the first time since 2023 that it has dipped below 50, and represents the lowest score since 2H 2022 – and LPs are already reporting increases in multiple indicators of poor fundraising momentum. However, there are no signs of panic. In fact, we have seen a fall in the percentage of LPs who report being at the high end of or above their target allocations, from 42% to 38%, and none of our respondents expected their investments to decrease in value in coming months. We see this as a period of ‘watchful waiting’ as investors and managers alike review and reassess opportunities.

2. Sharp decline in LP expectations for near-term distribution flows

   Recent rising optimism about exits has faltered, with LP confidence about liquidity falling by 25 points to 45, the largest drop since 2H 2022. The distribution squeeze remains top of mind for investors and GPs should continue to expect intense scrutiny of their DPI performance. On the other hand, those who are able to generate liquidity, through whatever means, are likely to reap a disproportionate reward – even if that means selling at a discount to current portfolio marks.

3. LPs continue to favour new relationships; re-ups bear the brunt

   The RLI score has reversed both for new money commitments and re-ups. The latter, at 45, remains firmly in negative territory, signalling no change to an environment in which, for the last three years, GPs have had to work much harder for re-ups than before. As LPs address underperformance in their investments and seek to diversify their portfolios to mitigate risk, this is to be expected. Turning to new relationships, the score of 52 represents a fall of 12 points on 2H 2024, the largest drop since 2020. However, a score above 50 signals that investors plan a slight increase in capital committed to new relationships, which should give hope to emerging managers that opportunities exist, even if they will be hard won.
   

4. In-bound investment in Europe and Asia rises as appetite for US-
   focused funds falls into contraction territory

   In the wake of recent shifts in US economic and trade policy, the ‘in-bound’ RLI for North America has fallen by 17 points since 2H 2024. At 48 it now sits in contraction territory, meaning that investors across all global regions expect to deploy less capital to North American focused funds in coming months. This is unprecedented in the history of the RLI. In the short term, Europe and Asia look likely to benefit from the flight from North America. The RLI for ‘in-bound’ investment in Europe rose by 9 points to 62, reflecting investors’
   sense of the relative safety of the market as well as likely new opportunities driven by country-level trends. Asia-Pacific saw a sharp rise of 10 points to 39 following three years of muted sentiment. Although it remains below the breakeven point, and interest in China has dampened in recent years, our research suggests that other countries and even region-wide funds are emerging into the gap.

5. Risk-off strategies coming back into vogue

   In response to the changed circumstances, investors are adopting risk-off strategies both in relation to asset types and sectors. There has been an uptick in intentions to increase exposure to income-oriented credit, infra, secondaries funds, distressed/market turnaround, large buyouts and other real assets. Investors are prioritizing a mixture of enhanced liquidity routes and stability. This is similarly reflected in a concomitant fall in appetite for smaller and midmarket buyouts, growth equity and venture capital, which traditionally bear more risk, especially in periods of volatility. By sector, healthcare and tech are seen as safer havens, with a more unshakeable growth trajectory; both posted large percentage gains. Sustainability/impact and industrials,
   which are respectively more vulnerable to political shocks and tariffs, were down