Private equity professionals are adopting a patient approach through ongoing uncertainty, pausing new deals while evaluating long-term strategies amid tariff turbulence.
The secondaries market is positioned to capitalize on distress opportunities, with certain domestic-focused businesses becoming increasingly attractive in the face of tariff impacts.
Deep dives
Impact of Tariff Turmoil on Private Equity
The recent tariff turmoil has created a stark contrast in responses between public and private equity markets. While public markets have experienced significant volatility, private equity professionals are adopting a patient approach, biding their time for clearer signals before making new deals. Deal-making has noticeably slowed, particularly with a reported dip in activity as January marked the slowest start for transactions in over a decade. Despite this, some experts suggest that the current environment could present unique opportunities for private equity firms willing to invest, especially in the lower mid-market sector where activity remains more resilient due to personal reasons for selling.
Fundraising Challenges and Investor Sentiment
The fundraising landscape for private equity is facing challenges due to the uncertainty generated by recent events, with many limited partners (LPs) seeking greater clarity from general partners (GPs) regarding their investment portfolios. As the timeline for returns stretches from the typical five-to-seven-year model to potentially ten years, concerns are mounting over how this will affect different sectors and future investments. LPs are also considering their strategies in light of prolonged market turbulence and expressing divergent views on whether to hold on to their investments or reassess their positions. This ongoing reevaluation may lead some LPs to miss high-return opportunities while others may try to capitalize on favorable conditions once uncertainty dissipates.
Potential Opportunities in the Secondaries Market
The secondaries market is anticipated to become a focal point for navigating the challenges posed by current market dynamics. While there may be an initial slowdown in activity due to widening bid-ask spreads, long-term expectations suggest that distressed assets could eventually enter the market, appealing to savvy investors. Interestingly, certain domestic-focused businesses find themselves insulated from immediate tariff impacts, which might enhance their attractiveness in secondary transactions. Market participants are pondering how best to assess valuations amidst these fluctuations, with some forecasts suggesting robust demand in areas like software and consumer goods that demonstrate resilience against supply chain disruptions.
The 'U-word' has well and truly returned to private markets. Uncertainty has dominated conversations the first half of April, as the back-and-forth tariff announcements have deepened the pause in dealmaking.
For the private equity industry, the trade war adds unwelcome distractions to an industry already grappling with challenges including lower distributions, higher interest rates, a difficult fundraising environment, consolidation and fundamental changes.
In this episode, editors from PEI Group's various titles covering the M&A market, deals, secondaries, LP insight and GPs analyze the private equity industry's response to the tariffs and volatility; where the challenges and opportunities lie; and what market participants are keeping their eyes on.
In this episode:
Adam Le, senior editor, EMEA, private equity, PEI
Mary Kathleen Flynn, editor-in-chief, PE Hub
Graham Bippart, senior editor, Buyouts and Private Funds CFO
