After a few years of sluggish activity, private equity dealmaking finally showed signs of life late last year. Heading into 2025, optimism was building among dealmakers that this renewed momentum could begin to chip away at the $3.2 trillion in unrealized NAV tied up across 29,000 buyout-backed companies, unlocking dealmaking, exits, and liquidity at scale.
The industry carried this strength into the first quarter, with both exits and deal activity posting quarter-over-quarter gains. However, President Trump’s “Liberation Day” tariffs quickly jolted private equity back into uncertainty, casting doubt on the industry’s ability to clear its growing backlog and accelerate dealmaking and exits in the months ahead.
Early indicators suggest a Q2 slowdown is materializing, with quarterly declines in both exits and deal activity anticipated as dealmakers grapple with heightened volatility. While some deals will inevitably move forward, a true inflection point will more likely arise once comprehensive trade agreements are finalized that give dealmakers the certainty needed to model pricing, margins, and EBITDA with confidence.
For now, deal activity appears set to divide along two lines: those opportunistic enough to seize on market dislocations amid ongoing uncertainty, and others who will opt to wait on the sidelines for greater clarity. Regardless of the stance general partners adopt, liquidity — or more precisely, the lack thereof — remains a central concern in discussions between GPs and their investors. The continued drought in large-scale exits is stalling any meaningful rebound in capital raising, prolonging the strain on the fundraising landscape.
In times of market disruption, there are inevitably both winners and losers. Amid the current wave of economic uncertainty, gaining an edge demands clear visibility across an entire investment portfolio. Investors need both granular detail and a high-level view to refine decision-making, strengthen underwriting, drive value creation, and assess the impact of shifting market dynamics on underlying assets. Those equipped with advanced data infrastructure are increasingly positioned to uncover critical insights faster and respond with agility. Here, we explore top themes from Bain’s recently released Mid-Year Private Equity Report.
Tariffs and their murky direct and indirect downstream economic effects hit deal volumes in Q2, prompting deeper scrutiny of valuations and borrower creditworthiness, especially in sectors with significant supply chain exposures like automotive, consumer electronics, and pharmaceuticals.
For investors, few things are more daunting than bringing assets to market amid uncertainty, and for buyers, underwriting in these conditions has entailed more time in diligence and stress-testing models. Throughout the second quarter, this dynamic reintroduced pricing disconnects, making it harder to get transactions across the finish line, as reflected in early signs of a slowdown in Q2 exits and deals.
Tariffs represent the latest shock in a string of disruptive events that have reshaped the private equity landscape, pushing firms to prioritize value creation more sharply than ever. From the war in Ukraine and the Covid-19 pandemic to sharp interest rate hikes, recent upheavals have pushed a renewed focus in getting hands-on with portfolio companies to drive operational improvements.
With deal activity slowing, many asset managers have turned their attention inward, partnering with management teams to identify supply chain vulnerabilities, pinpoint geographic revenue concentrations, and model potential outcomes and action plans.
Ultimately, as the global economy edges further into a post-globalization era, a return to the pre–Liberation Day status quo appears increasingly unlikely. Regardless of where tariff rates ultimately land, the broader shift underway suggests that portfolio companies will still need to fundamentally reassess how they operate.
Going forward, the strongest performers will be those that can adapt and build long-term resilience into their business models. To deliver returns and exits in this challenging environment, private equity firms must double down on value creation plans that can drive EBITDA growth and demonstrate to potential buyers that real upside is left on the table.
Predictability remains the missing variable to solve the dealmaking equation at scale. As Bain’s Hugh MacArthur says, it’s not the absolute value of inflation, interest rates, or tariffs that matters — it’s the ability to forecast them with some degree of certainty. Currently, the math simply doesn’t work for many investors trying to model returns and price risk.
That said, once confidence returns around these key inputs, deal activity will likely meaningfully accelerate. With record levels of dry powder still waiting to be deployed and a sizable backlog of companies sitting in portfolios, the conditions are ripe for a sharp resurgence when the market finds its footing.
The more compelling question is what happens in the meantime before market confidence fully takes hold. Here, market sentiment is seemingly diverging, with some participants opting for a cautious “wait and see” approach, while others pursue dislocations as openings for compelling investments.
For some investors, the current environment warrants caution — either because stalled exits are hindering fundraising efforts, or because the level of uncertainty makes it difficult to underwrite deals in their thesis. On the other hand, investors with available capital and strong conviction can move decisively to take advantage of attractive entry points.
As GPs navigate the increasingly fraught balance between extracting further value from portfolio assets and addressing LPs’ growing demands for liquidity, opportunities will likely emerge for agile and well-capitalized sponsors. For opportunistic investors, the liquidity crunch confronting some GPs could become a fertile ground for deal flow, offering access to high-quality assets at potentially attractive valuations, with considerable room for future upside.
Beyond the sponsor-to-sponsor channel, private equity firms are uncovering opportunities in the public markets. So far this year, uncertainty surrounding consumer-facing public companies fueled a wave of take-private activity. Notable recent deal announcements include Dick’s Sporting Goods’ $2.4 billion acquisition of Foot Locker and 3G Capital’s $9.4 billion takeover of Skechers, pushing take-private deal value up 24.6% quarter over quarter in Q1. As the year progresses, investors will likely continue capitalizing on dislocations in the public markets to acquire attractive targets — a pattern that has become a defining feature of dealmaking in recent years.
Further, rising market volatility and mounting liquidity pressures are prompting institutional investors to explore the secondary market more actively, potentially creating attractive entry points for buyers. In recent months, several major players, including the China Investment Corporation, Yale University, and the New York City Pension System, have launched sizable secondary sales.
Still, widespread price adjustments may hinge on a supply-demand imbalance that has yet to fully materialize. For now, assets remain relatively strongly priced. Yale’s portfolio, for instance, is reportedly being marked at 95 cents on the dollar, suggesting sellers aren’t under significant pressure to concede on valuation.
Another notable trend likely to carry through year-end is a pivot away from US-centric dealmaking, as asset managers with global reach lean heavily on their international presence to geographically diversify.
For example, KKR is actively increasing its exposure overseas while the US battles trade tensions and economic uncertainty. According to PitchBook, the asset manager deployed $10 billion in the four weeks following the announcement of new tariffs. Notably, over half of those investments were made outside the US.
Non-US LPs are also showing renewed interest in expanding their European exposure. With the dollar weakening, currency risk has become a growing concern, prompting several major investors to consider increasing allocations to Europe to avoid returns being eroded when profits are converted back to local currencies.
More broadly, private equity demonstrates a sectoral tilt away from import-heavy verticals and toward service-oriented industries like software and professional services. This provides insulation from direct tariff impacts, and deals in these resilient sectors will likely continue for companies with strong fundamentals and growth potential.
While the jury’s out on where dealmaking heads the rest of the year, the recent slowdown exacerbates an already fragile liquidity picture for LPs. DPI remains well below historical norms, leaving many investors cash-starved and above their target allocations. In turn, this dynamic is prompting difficult conversations with boards and investment committees.
Today, much of LPs’ private equity NAVs are tied up in ZIRP-era assets, bought in a completely different interest rate and inflation regime. As time goes on, greater scrutiny of valuations and what these holdings will actually command in current exit markets has intensified. Further, questions surrounding the true value of paper marks combined with liquidity challenges create a difficult equation for forward-looking allocation decisions.
Additionally, as discussed, some GPs will look to capitalize on market dislocations and lingering uncertainty to deploy capital into compelling opportunities. However, without a corresponding pickup in exit activity, the disconnect between capital deployment and realizations could further strain liquidity challenges.
Liquidity tools such as NAV loans and continuation funds have gained traction, as GPs seek alternative ways to ease growing DPI pressures and return capital outside of traditional exit routes. However, while they can offer temporary relief, they can’t address the liquidity hangover facing the industry at scale. Moreover, Bain notes that some LPs are growing increasingly impatient with these liquidity options.
Importantly, GPs equally feel the weight of liquidity pressures. Prolonged holding periods force asset managers to stretch their operational bandwidth across a growing portfolio of companies, straining internal resources. Perhaps more pressing, the continued slowdown in distributions still proves a major headwind for fundraising.
While the private equity industry narrowly avoided a sixth straight quarterly decline in fundraising in Q2, many firms are still struggling to secure fresh commitments. Predictable, income-generating strategies, like infrastructure, demonstrate relative fundraising resilience compared to the broader private capital universe.
However, the large majority of capital continues to flow disproportionately to large, established fund managers, leaving smaller players to contend with a fiercely competitive environment. According to Bain, for every $3 in capital sought by GPs, just $1 is available. In today’s environment, GPs looking to stand out must offer a clearly differentiated value proposition paired with a top-tier investor relations function to source new relationships and retain existing LPs across fund cycles.
Ultimately, tariffs represent just the latest in a series of disruptions that have ended a benign era of low interest rates, low inflation, and in turn, multiple expansion-driven returns. Today’s demanding environment calls for a renewed focus on genuine value creation, earnings growth, and disciplined portfolio management. Success increasingly hinges on rigorous underwriting and a clear, actionable value-creation plan from day one that enables portfolio companies to remain agile and resilient in a rapidly changing landscape.
As new market dynamics take hold, return dispersion across private markets will widen, sharpening the divide between top- and bottom-performing managers. For LPs, this shifting landscape raises the bar for portfolio management. With institutional allocators continuing to increase their exposure to private markets, overseeing large, illiquid portfolios now requires granular insight into asset-level fundamentals alongside a high-level, portfolio-wide view.
This approach becomes essential not only for refining re-up decisions and forming independent views on valuations, but also for shaping forward-looking commitments and responding in real time to evolving market conditions.
According to Bain’s Report, as liquidity pressures rise, LPs are favoring traditional exits — even at discounts. What does this mean for continuation funds? Discover why these vehicles are here to stay, how they’re reshaping the sponsor-to-sponsor market, and how LPs and GPs can navigate this growing opportunity in our latest Continuation Fund Report.
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