Navigating Uncertainty: Q1 Data Offers Glimmers of Hope for USA Private Equity Amid Tariffs and Volatility

Data from Q1 has been overshadowed by tariffs and other political news, but provides a window into the current strengths of the USA Private Equity (PE) market amid economic uncertainty.

What seemed like a rosy outlook for Private Equity heading into 2025 has largely been replaced with concern for the future amid economic and political headlines dealing with the effects of tariffs and other potential changes in USA policy. While it’s unclear how tariffs and associated supply chain issues may change the PE investment landscape, data from Q1 is giving analysts cause for hope, albeit with caution.

The good news about the USA Private Equity market

Globally, PE fundraising was down from the same period in 2024 and down 11% from the previous quarter. Private Equity International notes that “fundraising timelines have been slowly extending as capital continues to consolidate among top performers,” with 23% of funds “undersubscribed and closed below target.”

One bright spot was the secondaries market, which accounted for 30% of global PE fundraising, its highest quarterly share on record, with the two largest funds to close in Q1 both being secondaries vehicles.

In the USA, deal activity and exits were both down in Q1 2025 compared to the year before. According to EY, “firms have more than US$4t in portfolio assets, 40% of which have been held in excess of four years.” With expected market volatility due to tariff concerns, some holds could be extended even longer than normal.

While global aggregate deal values fell 10% in Q1, they were up 19% in North America, according to Preqin’s Quarterly Report, which cautioned that this may not last, as “global uncertainty will have a greater impact on larger deals than on smaller ones.” This is because smaller deals “can be less reliant on debt financing (especially relevant in a time of interest rate uncertainty) and allow managers to achieve satisfactory valuations at exit because multiple expansion often depends more on operational improvements than on broader market factors such as interest rates.” If that holds true, we could see the trend toward smaller exits continue throughout 2025.

Tariffs and other economic uncertainties may lead to fundraising challenges

US tariffs have been the big topic of discussion since they were first announced. Preqin notes that while tariff repercussions “may be, to a large extent, priced into public equity valuations,” the heightened uncertainty is “likely to keep both public and private market investors alert for the rest of 2025, as private equity valuations are yet to catch up with the time lag.”

An EY report says “nearly three quarters of global GPs expect tariffs to have a moderate negative impact on deployment activity over the next 3-6 months,” and suggests that “PE investors may pivot toward sectors aligned with geopolitical changes,” noting potential opportunities in aerospace and defense, USA-based manufacturing, domestic middle markets, private credit, and other sectors.

There is also the potential for a number of Fed rate cuts this year. For PE markets, that could be good news. As explained by USPEC, “When interest rates drop, private equity becomes more attractive as more investors seek higher returns than standard fixed-income investments.”

The resilience of Private Equity and the importance of finding operational efficiencies

Despite the uncertainty surrounding how tariffs will affect portfolio companies, industry analysts believe the outlook for PE is strong. As Preqin notes, seeing who makes smart choices during a trade war could help separate the best managers from a crowded marketplace.

“Market corrections expose weaker companies and highlight stronger businesses that demonstrate resilience,” says the report. “As the economic cycle stabilizes, these companies can unlock growth and position themselves as leaders.”

“While uncertainty may cause firms to refrain from deploying capital at scale over the next several months, increased volatility often leads firms to become more opportunistic,” says EY. “Nearly three-quarters of firms surveyed reported that their firm’s risk tolerance is higher than average, perhaps suggesting that many will use the market dislocation to capitalize on potential mispricing and other opportunities.”

EY adds that firms can “focus on value creation and working with portfolio companies” to help them “understand and execute against near-term imperatives, plan optimizations for the medium term, and where appropriate, consider longer-term strategic moves.”

How we can help

JTC works with funds of all sizes and specializations. Our PE fund administration solution is built to generate efficiencies that can reduce staff, eliminate unnecessary costs, and help managers focus on what they do best. With a knowledgeable global team, we can help PE managers determine where they want to go in the years ahead and how to get there in uncertain times.

To learn more about JTC’s solutions for Private Equity funds, click here or reach out to Harold directly.