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The runway leading up to the Liberation Day tariff announcement was enshrined in uncertainty. And while we now know where the tariffs are taking off from, the destination of the plane, and when and how it finally lands, is yet to be determined. What is known is that Trump’s latest round of tariffs are more aggressive than anticipated, and public markets are responding negatively.
In the near-term, US tariffs have understandably brought a whirlwind of volatility to global markets, governments, businesses, and investors. But the future remains shrouded in fog. Which countries were tariffed included some surprises. In response, China instituted 34% tariffs on the US – but how other US counterparts react with reciprocal tariffs is unknown. And, based on this US administration’s fluctuating approach to policy decisions, it’s important to remember that this may not be where tariffs ultimately disembark.
In short, there are more questions than answers. Here are the queries we believe are top of mind for private markets investors.
Based on futures, markets underestimated the extent of the Liberation Day tariffs and responded negatively. Wall Street is bracing for the economic impact of these tariffs, which has already led to significant market selloffs. Though no one has been immune, developing market countries, which are highly dependent on manufacturing and exports, are expected to bear the most pain. Global trade alliances that are not dependent on the US and were being rebuilt or fortified prior to Liberation Day, will accelerate. Sentiment, which drives markets, is expected to to decline and it is unclear how long it will take to rebuild.
The tariffs are likely to restrict productivity and growth while raising prices. As an economic or fiscal policy, they are unlikely to benefit the United States. Various industries are expected to be impacted, with specific emphasis on autos, semiconductors, and pharmaceuticals. The details are complex, with potential individual tariff rates and levies on thousands of product categories across 193 different countries. Countries may be able to negotiate lower rates on targeted industries by aiding US objectives, but the next few months are likely to continue to be volatile.
Other countries may impose retaliatory measures on the US, potentially stoking a long, drawn-out phase of deglobalization. The international political order may realign as countries reassess the nature of their relationship with the US, not just regarding trade but more broadly including the implications for defense and the existing world order. None of this is good news broadly for financial markets – but as Sun Tzu said, “Victory comes from finding opportunities in problems.” And we believe there are always opportunities in private markets if you know where to find them.
Investors are understandably worried about getting their money back and the Liberation Day tariffs are expected to shape private markets deal flow in several ways. First, increased costs and economic uncertainty caused by the tariffs may lead to a reduction in deal volume. Companies might be more cautious about pursuing mergers and acquisitions due to the unpredictable financial environment.
Second, there may be a shift in investment focus as private equity firms may direct their attention towards sectors less affected by tariffs, such as technology and healthcare, while avoiding industries like automotive and manufacturing that are more directly impacted.
Third, the tariffs could lead to valuation adjustments. As higher costs and potential supply chain disruptions affect profitability, this might result in more conservative valuations and deal terms. Additionally, firms are likely to expand due diligence efforts to better understand the tariff risk and potential impact on target companies. Overall, one result will almost certainly be a more cautious and selective environment for private markets deal flow.
Whenever we move through periods when forward visibility of economic conditions and business results are unclear, buyers will pull back from the market or will seek large valuation buffers. As a result, buyers and sellers will diverge in their pricing and valuation views, leading to less exit activity.
We have already observed a slowdown in deal flow leading up to the tariff implementation and expect sourcing activity to be choppy until the markets digest and assess the ultimate impact. From a distribution perspective, while the optimism that existed coming out of 2024 into January has waned, we expect activity to continue for high-quality assets, despite expectations that the overall distribution environment is likely to be slow and intermittent.
Private markets sellers are likely to be more cautious due to the impact of the Liberation Day tariffs. The tariffs introduce significant uncertainty into the market, making it more challenging to predict future economic conditions. This uncertainty can lead sellers to adopt a more conservative approach.
Higher costs for imported goods due to tariffs can contribute to inflation. Sellers may be cautious about pricing and valuation adjustments, anticipating potential impact on profitability. The potential for retaliatory measures from other countries adds to market volatility and increased volatility can make sellers more hesitant to engage in transactions, preferring to wait for more stable conditions.
Industries directly affected by the tariffs, such as automotive and manufacturing, may experience reduced profitability and growth prospects. Sellers in these sectors might be particularly cautious about entering the market.
That said, we continue to believe that given the amount of uninvested capital that exists in the market (from funds raised in 2020/2021 with 5-year investment periods), and the extended hold periods of existing PE-backed assets given the hesitation to sell in the 2022-2024 timeframe, GPs will come to market to satisfy LP frustration over low distribution activity. While it is clear that 2025 will not be the robust year we expected back in January, we believe the sellers will come to market selectively.
If the value of public market assets declines at the rate many expect the relative proportion of private market assets in a portfolio will increase and force investors to reconsider their allocations to private markets. As we’ve seen in recent history, the impact of the denominator effect can be significant, potentially leading to reduced new commitments to private markets and even secondary sales to manage overallocation. If the value of existing investments decreases, private equity firms may need to adjust their allocation strategies. Lower portfolio valuations can also make it more challenging for private equity firms to raise new funds. Investors may be more cautious and demand higher returns to compensate for increased risks.
So, the short answer is yes, like the public market dislocations from COVID and in 2022, we expect denominator effect related selling if public volatility persists. Periods like this tend to present great opportunities for secondaries, particularly in the LP-led space as there are highly motivated institutional sellers or those who are less sensitive to discounted prices. We would also expect to see a continuation of strong GP-led deal flow as traditional exit paths get even more challenging for GPs in periods of extreme volatility. So, on a relative basis, continuation fund deals in the secondary market look even more attractive. Plus, GPs are sitting on a huge amount of unrealized value in companies that need to be exited.
However, this could be more of a mixed story. Given that Europe is coming to with the idea that they cannot rely on the US as a sustainable economic partner any longer, fiscal policy is expected to be more stimulative, especially in areas of defense and technology. If global stock markets continue to decline, and a denominator effect comes into play, we would expect increasing headwinds for the general fundraising environment for private markets players.
Different sectors will be impacted in various ways by tariffs. For example, industrial manufacturing and consumer sectors will likely face headwinds depending on supply chain dynamics. However, the effects will be asset-level specific since some assets will have costs in tariffed countries, while others that are predominantly US-focused will be less impacted. On the other hand, industrial distribution is expected to experience tailwinds and healthcare, financial services, and business services sectors will likely have no material impact.
In the current economic climate, businesses in service and/or so-called “information economy” sectors such as technology, healthcare, and financials are likely to be more resilient than companies trafficking in capital goods like industrials and consumer sectors. This has always been the majority of our capital deployment based on PE focus areas, and this is expected to continue. However, should the current policy environment lead to a more protracted global economic slowdown, all companies and business models would be negatively affected. We continue to look for resilient business models and underwrite based on a challenging economic backdrop in efforts to protect as best we can against downside scenarios.
Specific to private markets investing, secondary buyers could again see opportunities to acquire high-quality portfolios at steep discounts. Historically, during times of market dislocation, the secondary market has been able to outperform, and this cycle should be no different. It has been said that one circles the globe looking for economic calamity as it makes for good LP-led secondary opportunities. If investors need to rebalance their portfolios because of the denominator effect, it would be good for the LP-led secondary market. We believe the secondary market should also see the benefits of a tightened liquidity environment through the continued prevalence of GP-led transactions, which are able to manufacture liquidity for LPs even in more challenging environments. The tariff induced market environment should be good for continuation funds.
The infrastructure market has structural advantages that limit its exposure to short-term cyclicality and sentiment changes in the broader economy, and infrastructure has not seen the liquidity challenges in recent years that we’ve seen in other asset classes. Thus, we expect this market environment should be good for private infrastructure, where investors seek the consistency and often inflation-protected nature of its underlying businesses. Themes such as data center demand, power and energy, and reshoring predated the recent headlines and should continue to strengthen.
We expect many segments of the private credit market will also be more insulated from the impact of tariffs, particularly where private credit tends to have less exposure to consumer and cyclical industries. Additionally, consensus points to higher inflation and slower growth, which can have an offsetting impact on interest rates. The floating rate nature of the private credit market has the potential to insulate a portfolio from volatility in interest rates while the longer-term impact of tarriffs are better understood.
For private markets (or any business), tariffs at this level are generally not positive and it is likely to slow dealmaking, exits, and broader activity in the near term. It is important to remember, though, that our view remains that the longer-term structure of private markets has demonstrated resilience and the ability to weather storms and uncover opportunities in even the most adverse conditions. During such periods, public companies may face challenges in raising capital or maintaining valuations, making them potential targets for buyouts or strategic investments by private equity buyers. Private companies operate outside of the daily/monthly/quarterly microscope of the public markets and can take a longer view through periods of market volatility.
HarbourVest private market portfolios are weighted towards services businesses, including technology, business services, financial services, and healthcare. A smaller percentage is allocated to consumer, manufacturing, and industrial sectors. The former, though not fully insulated, is less impacted by market fluctuations. The latter, however, are vulnerable for different reasons.
HarbourVest has always stressed appropriate diversification and selecting durable businesses that we view are all-weather investments. Our middle and lower-middle market focus is less dependent on global trade, which might hit the larger cap companies harder. In a tighter economic environment, businesses will continue to invest in technology to reduce costs and improve productivity. This should help venture portfolios where software and AI investments could provide important solutions.
As investors, we should lean into the principles of thoughtful investing, including diversification, underwriting the fundamentals, and perhaps looking to duration as an ally during uncertainty and market turmoil. Given current conditions, it is understandable that private markets growth might be affected. The key is to focus on underlying companies with durable business models and strong fundamentals while relying on valuable portfolio construction strategies such as diversification across more immune sectors, geographies, and vintages in efforts to help mitigate downside risks.
The current volatility in public markets positions PE firms to capitalize on unique investment opportunities that arise during uncertain times. During such periods, public companies may face challenges in raising capital or maintaining valuations, making them potential targets for buyouts or strategic investments by private equity players. Market volatility can also lead to a repricing of assets, creating opportunities for PE firms to acquire undervalued companies or assets at favorable terms.
The anticipatory uncertainty of these promised Liberation Day tariffs has cleared and we now find ourselves in the eye of a near-term market sell-off storm. But in a time when days often feel like weeks and weeks years, we must remember that storms do pass. And as we wait for the clouds to clear and markets to settle from the tariff shock, we remain optimistic the resilience and elongated horizon of private capital will continue to provide more advantageous returns than public markets over the long term.
We partner with GPs who we believe are among the best in the world, those who we expect are able to adapt and succeed under all market circumstances. We are confident they will adjust to this “new normal” and, as they have historically, look to buy and improve businesses rather than relying on multiple expansion and leverage as return drivers.
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HarbourVest Partners, LLC (“HarbourVest”) is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes; the information should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy. In addition, the information contained in this document (i) may not be relied upon by any current or prospective investor and (ii) has not been prepared for marketing purposes. In all cases, interested parties should conduct their own investigation and analysis of the any information set forth herein and consult with their own advisors. HarbourVest has not acted in any investment advisory, brokerage or similar capacity by virtue of supplying this information. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy or completeness of such information. The information is subject to change without notice and HarbourVest has no obligation to update you. There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest.
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“Professional Investor” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and its subsidiary legislation) means:
(a) any recognised exchange company, recognised clearing house, recognised exchange controller or recognised investor compensation company, or any person authorised to provide automated trading services under section 95(2) of the SFO;
(b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong;
(c) any authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;
(d) any insurer authorized under the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong), or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong;
(e) any scheme which-
(i) is a collective investment scheme authorised under section 104 of the SFO; or
(ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place,
or any person by whom any such scheme is operated;
(f) any registered scheme as defined in section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong), or its constituent fund as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A of the Laws of Hong Kong), or any person who, in relation to any such registered scheme, is an approved trustee or service provider as defined in section 2(1) of that Ordinance or who is an investment manager of any such registered scheme or constituent fund;
(g) any scheme which-
(i) is a registered scheme as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong); or
(ii) is an offshore scheme as defined in section 2(1) of that Ordinance and, if it is regulated under the law of the place in which it is domiciled, is permitted to be operated under the law of such place,
or any person who, in relation to any such scheme, is an administrator as defined in section 2(1) of that Ordinance;
(h) any government (other than a municipal government authority), any institution which performs the functions of a central bank, or any multilateral agency;
(i) except for the purposes of Schedule 5 to the SFO, any corporation which is-
(i) a wholly owned subsidiary of-
(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or
(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;
(ii) a holding company which holds all the issued share capital of-
(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or
(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong; or
(iii) any other wholly owned subsidiary of a holding company referred to in subparagraph (ii); or
(j) any person of a class which is prescribed by rules made under section 397 of the SFO for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of the SFO, or to the extent that it is prescribed by rules so made as within the meaning of this definition for the purposes of any provision of the SFO.
The first of such classes of additional “professional investor”, under the Securities and Futures (Professional Investor) Rules (Cap. 571D of the Laws of Hong Kong), are:
(k) any trust corporation (registered under Part VIII of the Trustee Ordinance (Cap. 29 of the Laws of Hong Kong) or the equivalent overseas) having been entrusted under the trust or trusts of which it acts as a trustee with total assets of not less than HK$40 million or its equivalent in any foreign currency at the relevant date (see below) or-
(i) as stated in the most recent audited financial statement prepared-
(A) in respect of the trust corporation; and
(B) within 16 months before the relevant date;
(ii) as ascertained by referring to one or more audited financial statements, each being the most recent audited financial statement, prepared-
(A) in respect of the trust or any of the trust; and
(B) within 16 months before the relevant date; or
(iii) as ascertained by referring to one or more custodian (see below) statements issued to the trust corporation-
(A) in respect of the trust or any of the trusts; and
(B) within 12 months before the relevant date;
(l) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio (see below) of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or-
(i) as stated in a certificate issued by an auditor or a certified public accountant of the individual within 12 months before the relevant date; or
(ii) as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;
(m) any corporation or partnership having-
(i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or
(ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date, or as ascertained by referring to-
(iii) the most recent audited financial statement prepared-
(A) in respect of the corporation or partnership (as the case may be); and
(B) within 16 months before the relevant date; or
(iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and
(n) any corporation the sole business of which is to hold investments and which at the relevant date is wholly owned by any one or more of the following persons-
(i) a trust corporation that falls within the description in paragraph (k);
(ii) an individual who, either alone or with any of his or her associates on a joint account, falls within the description in paragraph (k);
(iii) a corporation that falls within the description in paragraph (m);
(iv) a partnership that falls within the description in paragraph (m).
For the purposes of paragraphs (k) to (n) above:
An institutional investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:
(a) the Singapore Government;
(b) a statutory board as may be prescribed by regulations made under section 341 of the SFA, as prescribed in the Second Schedule of the Securities and Futures (Classes of Investors) Regulations 2018;
(c) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is —
(i) to manage its own funds;
(ii) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or
(iii) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;
(d) any entity —
(i) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and
(ii) whose funds are managed by an entity mentioned in sub‑paragraph (c);
(e) a bank that is licensed under the Banking Act 1970;
(f) a merchant bank that is licensed under the Banking Act 1970;
(g) a finance company that is licensed under the Finance Companies Act 1967;
(h) a company or co‑operative society that is licensed under the Insurance Act 1966 to carry on insurance business in Singapore;
(i) a company licensed under the Trust Companies Act 2005;
(j) a holder of a capital markets services licence;
(k) an approved exchange;
(l) a recognised market operator;
(m) an approved clearing house;
(n) a recognised clearing house;
(o) a licensed trade repository;
(p) a licensed foreign trade repository;
(q) an approved holding company;
(r) a Depository as defined in section 81SF of the SFA;
(s) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere;
(t) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;
(u) a designated market‑maker as defined in paragraph 1 of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations;
(v) a headquarters company or Finance and Treasury Centre which carries on a class of business involving fund management, where such business has been approved as a qualifying service in relation to that headquarters company or Finance and Treasury Centre under section 43D(2)(a) or 43E(2)(a) of the Income Tax Act 1947;
(w) a person who undertakes fund management activity (whether in Singapore or elsewhere) on behalf of not more than 30 qualified investors;
(x) a Service Company (as defined in regulation 2 of the Insurance (Lloyd’s Asia Scheme) Regulations) which carries on business as an agent of a member of Lloyd’s;
(y) a corporation the entire share capital of which is owned by an institutional investor or by persons all of whom are institutional investors;
(z) a partnership (other than a limited liability partnership within the meaning of the Limited Liability Partnerships Act 2005) in which each partner is an institutional investor.
An accredited investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:
(i) an individual —
(A) whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(B) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means —
(BA) a deposit as defined in section 4B of the Banking Act 1970;
(BB) an investment product as defined in section 2(1) of the Financial Advisers Act 2001; or
(BC) any other asset as may be prescribed by regulations made under section 341; or
(C) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(ii) a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —
(A) the most recent audited balance sheet of the corporation; or
(B) where the corporation is not required to prepare audited accounts regularly, a balance sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet, which date must be within the preceding 12 months;
(iii) A trustee of a trust which all the beneficiaries are accredited investors; or
(iv) A trustee of a trust which the subject matter exceeds S$10 million; or
(v) An entity (other than a corporation) with net assets exceeding S$10 million (or its equivalent in a foreign currency) in value. “Entity” includes an unincorporated association, a partnership and the government of any state, but does not include a trust; or
(vi) A partnership (other than a limited liability partnership) in which every partner is an accredited investor; or
(vii) A corporation which the entire share capital is owned by one or more persons, all of whom are accredited investors.
Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).
