Stress Tests: A Look at Recent Strains in the Private Equity Markets

In recent years, private markets have played a prominent role in the financial industry’s growth. Between 2012 and 2022, private market assets under management more than doubled in size, growing from about $9.7 trillion to an estimated $24.4 trillion. Meanwhile, as more new companies eschewed going public, their numbers increased more than 60% globally during the same period, contributing to the number of publicly traded companies in the United States flatlining since the early 2000s.

Private markets have been buoyed by institutional and accredited investors seeking diversification and the allure of higher returns. In fact, measured on a global level, during a 20-year period ending on September 30, 2024, private equity (PE) had generated a 13.4% annualized return, compared to only 8.9% for global public equities (MSCI ACWI PME Index). Meanwhile, innovations such as evergreen funds, interval structures, and tokenized assets have facilitated access to private markets for an ever-growing array of investors — including retail.

In turn, financial advisors have had to work hard to develop their own expertise in private market dynamics while also remaining cautious when discussing with individual clients the risks and rewards of private market allocations. Nonetheless, according to a recent survey by Adams Street Partners (a private markets investment firm with more than $62 billion in assets under management), 92% of advisors expect private markets to outperform public markets over the long term and 67% of advisors anticipate an increase in the percentage of clients with an allocation to the asset class during the next three years.

But the undeniable allure of private market assets and their growing popularity does not mean they are immune from systemic shocks. This lesson was underscored in April 2025 when sweeping new tariff policies from the Trump administration triggered sharp drawdowns in public equity markets — and similarly caused significant, unexpected dislocations in PE markets.

In the Wake of the U.S. Tariff Policy Announcement

The “Liberation Day” tariff proposals, introduced on April 2, 2025, sent the S&P 500 plunging more than 10% in two days. This historical action in public markets raised a critical question: Would PE — with its long investment horizons, locked-in capital commitments, and infrequent asset valuations — be insulated from the global volatility and stress that the broader financial system was experiencing?

At this point, the evidence suggests there was discernable stress and dislocation in the PE space.

First, the tariff announcements triggered immediate and significant downward revisions to macroeconomic forecasts, raising fears of slower growth, higher inflation, and recession. The International Monetary Fund noted in its April 2025 Global Financial Stability Report that the surprise magnitude of the April tariffs significantly shifted analyst expectations toward lower growth and asserted that global financial stability risks had increased greatly. Against this backdrop, the PE markets, like their public counterparts, experienced significant strains.

Stresses in the Private Equity Space

A significant cooling effect on PE deal activity was widely reported following the April tariff announcements. Market participants, including PE firms and their portfolio companies, adopted a cautious "wait-and-see" approach, hesitant to proceed with transactions until the tariff situation became clearer. Expansion plans were reportedly halted as companies were forced to scrutinize supply chain vulnerabilities. The increased costs associated with tariffs and the broader economic uncertainty stemming from trade policy volatility led companies to become more cautious about pursuing mergers and acquisitions.

The tariff turmoil also exerted downward pressure on PE valuations. The prospect of higher operating costs disrupted supply chains, and a weaker economic outlook directly threatened the profitability of portfolio companies, prompting analysts to anticipate valuation adjustments and more conservative deal terms.

Perhaps the most acute impact was on PE “exit confidence” — the belief by investors and sponsors that they will be able to sell their portfolio assets within a reasonable time frame and at an attractive valuation. Coming into 2025, “exits” already were considered the industry's most pressing challenge. The tariff induced turmoil around traditional exit pathways forced general partners (GPs) and limited partners (LPs) to look more intensely at alternative liquidity solutions (mechanisms that provide interim liquidity when traditional exits are unavailable). Continuation funds, which allow GPs to hold onto promising assets while providing liquidity to existing LPs, saw their strategic importance amplified.

The turmoil also negatively impacted the fundraising environment, which already had been experiencing challenges. LPs expressed concerns that the tariff-induced volatility would further complicate an already sluggish fundraising market and potentially postpone a recovery in distributions. Global PE fundraising in Q1 2025 totaled just $179.1 billion, the lowest Q1 figure since 2020 and nearly $22 billion lower than Q1 2024. The crucial link between exits, distributions, and new commitments was exacerbated: Without expected distributions returning capital to LPs, their ability and willingness to commit to new funds is constrained.

Private Markets are Not a Macroeconomic Fail-safe

April 2025 delivered a powerful lesson: Private markets, including PE, are not immune to macroeconomic shocks. Though structured differently and less marked-to-market than public equities, PE investments are interconnected with broader economic cycles and experience their own unique tensions and strains during times of upheaval.

For financial advisors and wealth managers, several implications emerge:

• Set realistic expectations. Advisors must educate their clients that private assets, while valuable for diversification, are not immune to a downturn.

• Prioritize manager quality. The tariff announcement revealed the importance of partnering with managers who demonstrate strong operational expertise, flexible exit strategies, and resilience in turbulent environments.

• Maintain portfolio flexibility. Allocating to private markets should be balanced by sufficient liquidity elsewhere in the portfolio to weather periods of constrained exits.

• Anticipate continued innovation. Going forward, secondary markets, continuation funds, and structured liquidity solutions likely will become more important features of private markets.

As the private market environment evolves, so too must the expertise of those navigating it. For financial advisors seeking to deepen their fluency in private markets, the Private Markets for Advisors certificate program, offered by the Investments & Wealth Institute, presents a robust and timely educational opportunity. This 15-hour assessment-based program — developed in partnership with Macquarie Asset Management — equips professionals with the knowledge and tools to implement private equity, private credit, and private real assets strategies across diversified portfolios.

Structured modularly, and covering topics from asset allocation to changes and innovations in the structures, strategies, and products within private markets, the course offers a blend of Ivy League-quality content and real-world application. Advisors who successfully complete the e-learning program will earn 15 CE credits that are applicable toward CIMA®, CPWA®, and RMA® certification continuing education requirements. The course also is approved for CFP® CE. Accessible for one year upon enrollment, the program is a timely resource for advisors guiding clients through 2025’s rapidly evolving private investment landscape.