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Navigating choppy waters: US PE's strategic balance amid economic uncertainty
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The US PE universe finds itself navigating uncertain waters, carefully steering between the opportunities presented by economic turbulence and the caution prompted by emerging signs of deceleration.
As economic indicators point toward a slowdown and international trading relationships become increasingly unpredictable, PE firms face the challenge of charting a prudent-yet-proactive course.
The year began optimistically, with Q1 data indicating robust confidence among dealmakers.
PE deals saw considerable momentum, particularly in large take-privates. Notably, Sycamore Partners executed the $23.7 billion acquisition of Walgreens Boots Alliance, signaling a willingness among investors to pursue ambitious transactions even in shifting market conditions.
Meanwhile, technology-focused investments also attracted attention, including a notable $12 billion growth equity commitment to Aligned Data Centers, driven by surging demand for AI and cloud infrastructure.
Yet, despite this strong start, early signs suggest the tides may be turning.
Dealmakers may soon encounter headwinds, particularly as macroeconomic uncertainties such as tariffs begin to materially impact portfolio companies. These new trade policies have compelled PE-backed companies—of which approximately 3,800 have been held for five to 12 years—to consider strategic adjustments, from increasing prices and scaling back marketing budgets to optimizing supply chains and streamlining distribution channels.
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| B2B and B2C firms likely have the most exposure to imports. |
This strategic repositioning is especially critical for the roughly 40% of these firms in the B2B sector and the 19% operating in B2C, both exposed to tariff-driven disruptions.
Exit trends illustrate further complexities. Although improving credit conditions have facilitated sponsor-to-sponsor transactions and revived IPO markets through Q1, these gains remain fragile.
With valuations undergoing recalibration and potential divergence emerging between buyer and seller expectations, momentum in exit activities could stall as we move deeper into 2025. The sizeable backlog of companies awaiting exit could exacerbate pressures on PE firms to pursue continuation vehicles or alternative exit routes, adapting to the slower currents of market liquidity.
Despite these challenges, the PE industry remains well-equipped to navigate stormy seas, buoyed by substantial reserves of dry powder—approximately $1 trillion in corporate private equity and $567 billion in private credit.
These impressive capital reserves provide PE firms with considerable flexibility, positioning them to capitalize swiftly on market dislocations and attractive entry points.
Given the rapidly evolving landscape, PE managers capable of accurately gauging market risk in deploying capital and closing exits will be best positioned to restore PE to its historical return levels in the mid-teens.
Gain a comprehensive understanding of these unfolding dynamics, explore key valuation insights, exit strategies, and sector-specific analysis by downloading the free Q1 2025 US PE Breakdown.
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Market uncertainty could mean another year for VC illiquidity
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Tariffs have complicated plans for a liquidity comeback in venture capital.
Exits were slow in the first quarter, which was expected, and it will take some time for a business-friendly environment to foster M&A.
Additionally, there had been several filings from companies hopeful for an IPO, which could have increased activity in the second quarter.
Market volatility and uncertainty regarding current and future policy decisions have created skepticism about whether this year will see a return of liquidity—and rightly so. As public companies experience collapsing share prices, the market becomes increasingly difficult to assess and price.
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| VCs have been desperate for liquidity. |
If hesitations push IPO registrations beyond the 90-day tariff pause, new filings might not restart in earnest until mid-to-late Q3, and it's uncertain what the market will look like at that time.
Another year of illiquidity for VC could have significant consequences in the coming years.
Fundraising in Q1 resulted in the lowest amount of new commitments in a decade, with only 15 firms successfully closing their first fund. The high level of dry powder that has often been highlighted as a substantial source for VC is now concentrated in a few multistage funds and established managers.
Firms with capital to invest are in a strong position, though. The market remains highly investor-friendly, and the availability of investment opportunities should help improve portfolio quality.
In VC, sentiment can change more rapidly than actual activity. There is a non-zero chance that next quarter's sentiment may again turn optimistic regarding increased liquidity, but that's not the house bet at the moment.
For more data and analysis, download our free Q1 2025 PitchBook-NVCA Venture Monitor.
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Several events upcoming:
April 28-29: Visit us at DealCatalyst's CLO Annual Conference, where we will offer demos at our booth. Also, senior editor Glen Fest will moderate a panel discussion titled "CLOs Go Retail – The Rise of CLO ETFs."
April 29-30: Visit us at ILPA Summit Europe and join our lead research intelligence engineer, Andy White, for a presentation on key trends and market updates, followed by a roundtable discussion on end-of-life funds.
May 12-13: Come see us at DealCatalyst's upcoming Private Credit Industry Conference. On May 13, our EVP of research and market intelligence, Nizar Tarhuni, will join an LP roundtable to discuss the relative value of private credit versus other fixed income investment alternatives.
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Our insights and data featured in the press:
• "The reality of a VC market rebound has likely faded as the effects of new tariffs and policy shifts take hold." [Business Insider]
• DeepSeek's efficiency claims are likely shaping investor attitudes about AI companies inside and outside China. [Rest of World]
• PE firms will likely turn to partial liquidity options like continuation vehicles to ride out volatility. [WSJ]
• Massive AI deals are "masking the challenges many founders are going through." [ | | | | |
