Private Markets Bracing for Tariff Impacts

With events unfolding daily (even moment to moment), it is not yet clear how the nearly $2 trillion of assets in the private equity and venture capital market will be impacted. However, given the diversity and breadth of industries across the private markets, it is clear that the impact won’t be uniform. Private company valuations are slower to reflect changes in micro and macro environments than those of daily-priced public companies, but movements in the public markets can provide directional guidance.

While we wait for the geopolitical and macroeconomic dust to settle, it is likely that private market transaction activity will slow down. Unfortunately, the anticipated slowdown could not be happening at a more inopportune time, as the ongoing distribution drought and short-term return underperformance have already been weighing on the private markets, dampening activity and sentiment, including fundraising. This pause is going to amplify all of these elements.

Compared to the public markets, private markets deliver far more comprehensive exposure to the economy, from start-up companies to established companies large enough to go public that have opted to stay private, and everything in between, across all sectors. It is possible that the impact of tariffs and other government actions, including second order effects, may be felt further and more deeply in the private markets due to this depth and breadth.

A market slowdown also means the managers waiting to deploy nearly $2 trillion of dry powder have time to absorb the changes and incorporate adjustments ahead of expected deployment. Given the risks outlined above to the capital “in the ground” (i.e., already invested), private investment managers are hyperaware of the need to generate competitive returns on their next set of investments. First and second order effects, as they take hold, could also create additional investment opportunities. Private strategies potentially positioned to benefit during this period include secondaries, deep value industrial, and distressed, among others.

We advocate maintaining private market allocations. Investors should assess their exposures by manager, strategy, company stage, sector, and geography, and prepare to make adjustments to benefit their portfolios. Dry powder may vary by investor, but that capital—at a minimum—will go to work in the market ahead, capturing whatever benefits the current situation may yield. On top of that, we recommend maintaining investment pacing and, therefore, exposure going forward. From a market-wide cash flow perspective, we have observed that capital calls tend to outpace distributions when activity in general contracts to one degree or another. Investors should monitor their private market portfolio liquidity requirements. Maintaining a long-term perspective, which is required for private investing, should serve as a focal point during this tumultuous period.

Andrea Auerbach, Global Head of Private Investments