A Mid-Year Megatrends Update

Scientists are leveraging AI and machine learning alongside genetics and genomics to identify disease-causing genes at an unprecedented pace. Yet the high cost of drug development — averaging $2.6 billion per new medicine — means the pace of innovation struggles to keep up, leaving one in three new therapies unfunded and contributing to a $172 billion annual R&D gap. The strategy potentially offers investors uncorrelated returns, especially important in today’s environment, as returns are derived from the success of the products. Our recent sale of Anthos to Novartis in April for up to $3.1B reflects firsthand the uncorrelated nature of the strategy. We built Anthos from the ground up after acquiring Abelacimab from Novartis during its early clinical development, which showed a strong potential to prevent strokes. We assembled a premier management team, designing the clinical development plan while maintaining a controlling equity stake. Abelacimab has shown up to an 93% reduction in bleeding versus competitors and is now in Phase 3 trials for stroke and embolism prevention. ^{[ 4 ]} As technology helps accelerate medical breakthroughs, the opportunity set continues to grow in both scale and significance.

Capital committed to primary private equity funds has grown more than threefold since 2009 – from $300 billion to roughly $1.0 trillion. In contrast, the secondaries market has grown more than sevenfold since 2013 – from $28 billion in 2013 to over $200 billion expected in 2025. ^{[ 6 ]} Even with this growth, the secondary market still represents only ~1.5% of global alternative assets, highlighting the substantial runway ahead.

With IPO and M&A activity still subdued, secondaries are playing a critical role in providing liquidity to long-dated private investments. Our scale, data advantage, and extensive network –  with over 6,000 unique funds and more than 1,850 GP relationships – position us well in this increasingly important market. We are targeting opportunities that leverage these competitive advantages, and in 2024 alone, our secondaries platform invested $10 billion across 107 transactions involving approximately 600 underlying fund interests. Year to date, the Strategic Partners team has reviewed over 600 transactions, representing more than $230 billion, across its Private Equity, Real Estate and Infrastructure strategies. The current environment reflects a buyers’ market, characterized by a large and growing source of supply with an annual turnover of ~1% and approximately 1.1 years of secondary dry powder overhang. Secondaries have emerged as a structural solution, offering both buyers and sellers flexibility in a historically illiquid asset class. With strong secular tailwinds in place, we believe the opportunity in secondaries is only accelerating.

Supply has sharply contracted, prices have reset amid higher interest rates, financing cost and availability continues to improve and tenant demand remains strong within our top sectors of logistics, rental housing, and data centers that collectively represent ~75% of our global real estate portfolio. The long-term structural tailwinds in these areas, combined with a healthier market dynamic, are driving our continued enthusiasm for our existing portfolio as well as for new investments.  

The sharp decline in new construction starts is particularly noteworthy. U.S. logistics and multifamily starts are down over 65% from 2022 peak levels and at historically low levels. ^{[ 8 ]} In the U.S., it costs 50% more on average to build today than it did five years ago. Higher costs have also exacerbated the housing supply shortage, as we are still short 4-5 million homes in the U.S. ^{[ 9 ]} The cost of owning a home in the U.S. has also significantly increased and is ~44% higher than the cost of renting – up sharply from the ~5% historical average and further fueling rental demand. ^{[ 10 ]} We are seeing this supply and demand dynamic not only in the U.S., but globally, adding to our view that now is a time to lean in.

We remain positive on the U.S., but are equally focused on capturing the potential we see across markets in India, Japan, and Europe. In India, strong secular tailwinds – including a growing middle class, a large working-age population, and an increasingly integrated economy – are creating powerful long-term opportunities. Japan, one of our fastest growing markets globally and a region where we’ve been active for over 18 years, is undergoing a generational shift, supported by structural reforms, rising capital investment, and renewed consumer strength. In Europe, a new phase of synchronized fiscal and monetary policy support is unlocking liquidity, catalyzing growth, and creating a multiplier effect that ripples through the economy. We look forward to sharing more on these and other high-conviction themes in future pieces.