After years of turbulence, 2024 marked a long-awaited inflexion point for private equity. With inflation cooling, interest rates beginning to ease and economic forecasts stabilising, momentum returned to the market. Dealmaking accelerated, exit activity picked up and investor sentiment turned optimistic. Yet, as we enter 2025, the industry is again recalibrating in the face of renewed challenges--most notably, the introduction of sweeping US trade tariffs under president Donald Trump’s “economic liberation” agenda.

Whilst these developments have introduced fresh complexity into the global investment landscape, they also represent a defining moment for private equity firms to demonstrate resilience, creativity and strategic clarity.

Let’s not forget that private equity is a long-term investment. It has demonstrated resilience in the face of economic disruption as a hallmark of the asset class--and recent developments, such as the reintroduction of tariffs under the Trump administration, are unlikely to alter that trajectory. Just as the industry successfully navigated the covid-19 pandemic, the Global Financial Crisis (2007-2009), and the dotcom downturn of the early 2000s, it is well positioned to withstand and adapt to the turbulence these new trade policies may bring.

This durability is rooted in the structural advantages of the PE model: a long-term investment horizon that enables firms to manage through volatility without the pressure of short-term liquidity needs and an active ownership approach that drives operational efficiencies and strategic pivots across portfolio companies. Moreover, the significant levels of dry powder available allow PE firms to invest opportunistically--particularly in dislocated or undervalued assets that may emerge due to shifting trade dynamics. In this context, private equity’s ability to endure and capitalise on periods of uncertainty remains a defining characteristic of the asset class.

In the short term, the current tariff uncertainty will likely delay private equity exits as firms remain reluctant to realize losses. As a result, secondary market activity is expected to rise, benefiting funds actively launching or scaling their secondary strategies.

Another area set to gain traction is NAV-based (net asset value-based) financing. This controversial tool allows firms to borrow against the value of their portfolio companies. Often referred to as “pray and delay,” this approach can be seen as merely postponing the inevitable, particularly risky in an environment where the broader economic foundation appears unstable. Under these conditions, carried interest is unlikely to materialise for many private equity professionals in the near term.

If these tariffs persist, shifting toward a more protectionist economic model will significantly depart from the free-trade framework that has defined US policy for the past 75 years. Capital flows could be redirected, supply chains restructured, and longstanding trade dynamics fundamentally reshaped. This evolving tariff landscape will likely have immediate and lasting implications for private markets as well as create new opportunities.

2024: a year of renewed momentum

By many measures, 2024 was a comeback year. Private equity deal value rose 37%, and exit activity climbed 34%, buoyed by improved macroeconomic conditions and greater policy predictability. Inflation and interest rates moderated, GDP growth remained steady and confidence returned to capital markets.

Fund managers responded accordingly, actively deploying capital and pursuing opportunities underpinned by data-driven fundamentals. Optimism was grounded in reality, not speculation, for the first time in years.

Liquidity pressures persist

Yet beneath the surface, liquidity challenges remained. Distributions as a percentage of private equity net asset value (NAV) fell to just 11% in 2024--well below the historical 25-30% range, according to Bain & Company. Despite impressive AUM growth--reaching $4.7trn across global buyout strategies--the capital cycle has become increasingly constrained.

Nearly half of all deals completed in 2019 have yet to return capital to LPs. This extended capital lockup strains the fundraising cycle and limits reinvestment opportunities, prompting many firms to explore alternatives such as NAV-based financing and expanded use of the secondary market.

Fundraising: a time for strategic recalibration

Not surprisingly, fundraising activity softened. Total capital raised by buyout funds fell 23% in 2024, the third consecutive year of decline and the steepest drop over a decade. LPs, facing lower distributions, have become more selective--prioritising managers with demonstrated liquidity generation and a clear roadmap for value realisation. This is a natural follow-on from liquidity as all these things form a cycle: deal values come back, transactions come back and exits come back. Eventually, liquidity returns for LPs, and then LPs gain the confidence to make new commitments for new funds.

The industry is not retreating; it is evolving.

Shanu Sherwani, partner, Antwort Capital

Another critical factor is that the declining public market valuations could decrease allocation to private assets, notably for pension funds. The downward pressure on public market valuations has increased the mix of private market exposure in asset-allocation ratios (the ratio of private market assets to public market assets in a portfolio). In recent years, this ratio has been moving in the other direction, with private market holdings generally declining in valuation while public valuations have increased. A reversal of this trend increases the mix of private assets and puts pressure on allocators to reduce this exposure.

Many firms are rethinking their capital strategies and tailoring offerings to more diversified investor bases, including sovereign wealth funds, family offices, and high-net-worth individuals, who are expected to drive the next wave of private market inflows.

The tariff catalyst: risk or realignment?

The introduction of new US tariffs in April 2025 marked a turning point. Market reaction was swift, with sharp declines in public equity valuations for firms like Blackstone and KKR. Yet beyond the volatility lies a more profound strategic question: how should private equity respond to a shift away from globalisation?

Whilst tariffs undoubtedly introduce friction--raising costs, extending exit timelines and creating regulatory uncertainty--they also accelerate specific structural shifts. Domestic manufacturing, supply chain reshoring and strategic sector investment (e.g., AI, biotech, advanced materials) are now receiving renewed focus. For firms able to pivot quickly, the environment presents new avenues for alpha.

Navigating the new landscape: near-term tactics

In the short term, managers will have to adapt in several ways:

—Secondary markets will gain further traction as a key liquidity source, benefiting funds and LPs seeking optionality.

—NAV-based financing will provide interim solutions, though used cautiously due to long-term risk considerations.

—Exit activity may slow, but many see this as an opportunity to strategically reposition assets before re-entering the market.

Meanwhile, pension funds are reassessing allocations and, in some cases, opting for partial liquidity--creating openings for secondary specialists.

Long-term realignment: positioning for growth

If tariffs persist, we may witness more profound shifts:

—Domestic investment will grow: with cross-border costs rising, U.S.-based manufacturing and supply chains may see a resurgence--particularly in strategic industries like AI, pharma and advanced manufacturing.

—New trade alliances may form: Europe, Canada, China and other Asia-Pacific nations will likely respond by building new free-trade zones that offer attractive future investment opportunities for European private equity funds.

—Large managers will consolidate capital: institutional investors favour scale and stability in uncertain times. However, managing complex global portfolios will test even the largest firms.

—Specialist managers could gain ground: Firms that develop niche expertise--in niche regions, such as navigating tariff implications and finding arbitrage opportunities, may find themselves in high demand.

Alpha in a new era

Generating outperformance is becoming more nuanced and resource-intensive. Bain & Company projects that 60% of future private capital will come from sovereign wealth and private investors, with distinct expectations, timelines and service demands. To win this next chapter, fund managers must evolve their investor engagement models and invest in digital platforms, informative content and flexible fund structures.

A market in motion, not in retreat

As we move deeper into 2025, private equity faces undeniable complexity and compelling opportunity. The market reset of 2024 restored momentum, and whilst the trade policy pivot has added new layers of risk, it also offers catalysts for innovation and differentiation.

Success in this environment will demand more than capital--it will require clarity of vision, operational excellence, geopolitical fluency and a steadfast focus on long-term value creation. The industry is not retreating; it is evolving--and the firms that rise to the moment will shape the future of private markets.

Shanu Sherwani is partner at Antwort Capital.