Capital at a Crossroads—Why Private Markets Matter More Than Ever

As we write this letter, the global economy stands at an inflection point. Escalating geopolitical tensions, realignments in global trade, market volatility, and shifting regulatory landscapes have created an environment of heightened uncertainty. The continued ripple effects of tariffs, supply chain recalibrations, and fragmented geopolitical alliances are reshaping how capital flows—and where opportunities lie.

While these short-term disruptions have rattled public markets, they have also reinforced the strategic importance of private markets. The long-term trends driving innovation, value creation, and capital formation remain intact—and in many cases, are accelerating.

In this context, understanding how capital is being deployed—and where long-term value is being created—has never been more essential. The transformation of the investment landscape is well underway, and private markets are at the center of it.

Over the past two decades, the number of publicly traded companies in the U.S. has declined by nearly 50%, while the number of private companies has grown by over 500%—from fewer than 1,000 in 2000 to more than 6,000 today.¹

This seismic shift means a growing share of the economic activity that drives wealth creation—hyper-growth, innovation, and scaling into market leadership—is now occurring before companies ever reach the public markets, if they do at all. Many of today’s most dynamic businesses have raised billions in private capital, allowing them to accelerate innovation, create jobs, and generate meaningful value while remaining privately held.

As a result, private markets have become critical engines of both value creation and employment. The way companies raise capital, innovate, and expand has changed dramatically—shaped by geopolitical realignments, technological breakthroughs, and evolving macroeconomic forces. At the same time, public market-focused strategies are facing structural limitations, with fewer listings and constrained access to early-stage growth.

For investors seeking to capture the next era of economic expansion—and alpha generation—understanding the evolving role of private markets is more essential than ever. The forces reshaping capital deployment are not only unlocking compelling investment opportunities— they're defining the next chapter of innovation, value creation, and job growth across the global economy.

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A new era of private market investing is being driven by a fundamental shift in where economic activity—and long-term enterprise value—is being generated. Several powerful trends are transforming how capital is deployed, where opportunity lies, and who gets access. These include, but are not limited to:

THE AI REVOLUTION AND THE ENERGY AND INFRASTRUCTURE BOOM
The rapid advancement of artificial intelligence is driving extraordinary demand for data centers, energy infrastructure, and computing power. As AI use cases expand, so does the need for investment in the physical and digital systems that support them. More than $1.8 trillion of capital is expected to be deployed by 2030 to meet this growing demand, underscoring the sector's explosive potential.² Private markets are playing a key role in financing these large-scale developments—from renewable energy and grid modernization to nextgeneration semiconductor manufacturing.

STRATEGIC REALIGNMENT OF INVESTMENT AND SUPPLY CHAINS
The COVID-19 pandemic exposed vulnerabilities in global supply chains, triggering a wave of rethinking around how and where goods are produced. What began as crisis response has evolved into lasting strategic realignment— accelerated by geopolitical tensions, trade realignments, and national security concerns. Companies are prioritizing onshoring, domestic manufacturing, and investment in defense, infrastructure, and energy security. These shifts are fueling capital flows into sectors essential to national resilience. One clear signal: U.S. manufacturing construction spending has more than doubled since 2021, surpassing $200 billion annually as the push for supply chain security intensifies.³

THE PRIVATE CREDIT EXPANSION
Private credit has emerged as a powerful alternative to traditional financing channels, offering companies flexible capital while enabling investors to capture attractive risk-adjusted returns. Now a $1.8 trillion market,⁴ private credit has become a critical source of liquidity for businesses and a stabilizing force within private capital markets. In 2024, direct lending deal activity more than doubled from the prior year, with more than $300 billion in volume⁵—underscoring private credit’s growing role in corporate financing and its resilience amid market volatility.

THE RISE OF INSURANCE AS A PRIVATE MARKETS PLAYER
A key driver of private credit’s expansion is the growing participation of insurance companies. In search of stable, long-duration returns and better asset-liability matching, insurers are increasingly turning to private markets—particularly private credit. These strategies offer yield premiums over traditional fixed income with lower mark-to-market volatility. Insurers expanding presence reflects a structural shift in how insurance capital is being deployed and reinforces the rise of long-term, patient capital as a source of real economic impact.

THE RISE OF PRIVATE WEALTH INVESTORS IN PRIVATE MARKETS
Individual investors are gaining access to private markets—once the exclusive domain of institutions—through new investment vehicles designed for broader participation. This democratization is being driven by regulatory evolution, product innovation, and technology platforms lowering barriers to entry. More than 90% of financial advisors are planning to increase their private markets allocations in the next two years.⁶ As access expands, a new class of investors is tapping into private opportunities that were previously out of reach.

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Combined, these structural shifts have changed the way investors must think about capital deployment. Simply put, private markets have evolved beyond an alternative asset class—they have become a primary driver of global investment opportunities. Success in this environment requires scale, efficiency, and deep sector expertise.

The ability to navigate complex deal structures, access proprietary opportunities, and deploy capital with speed and discipline has never been more critical. Firms with strong relationships, differentiated insights, and a global platform are best positioned to lead— and to unlock the full potential of private markets in the years ahead.

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From its founding, Carlyle was built to capitalize on structural shifts—identifying opportunity early, deploying capital with discipline, and leveraging sector expertise to drive lasting value. The results in 2024 reflect that strategy in action.

We met or exceeded all 2024 financial targets. Fee Related Earnings (FRE) surpassed $1.1 billion, a nearly 30% increase year-over-year, while our FRE margin expanded to 46%, up 900 basis points. Total inflows of $41 billion in 2024 brought our two-year total to more than $100 billion. These results highlight the strength of our platform, our disciplined execution, and our ability to navigate evolving markets to deliver longterm value for our clients and investors.

With a global footprint, innovative mindset, and focused investment approach, Carlyle is well-positioned to lead in the next phase of private market evolution.

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We recognize that the current environment is marked by complexity—from inflationary pressures and tighter monetary policy to geopolitical fragmentation, shifting supply chains, and rapid technological transformation. But with disruption comes opportunity. Private markets are uniquely positioned to serve as stabilizing forces in uncertain times and dynamic engines of innovation and growth.

Private markets are no longer just an alternative—they are a primary engine of capital formation and economic progress. As this next chapter unfolds, Carlyle remains committed to helping investors navigate this evolving landscape with clarity, confidence, and conviction.

On behalf of the entire Carlyle team, thank you for your continued trust. We look forward to another year of delivering lasting value for our investors and stakeholders.

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