The introduction of Trump tariffs precipitated market dislocations reminiscent of the 2007–2008 global financial crisis, particularly across public markets where volatility and price discovery are immediate. In private markets, however, the impact has been less immediately discernible; their structural features with inherent characteristics such as lower liquidity, lagged valuation cycles, and reduced transparency have obscured the extent to which these protectionist measures have been reflected in private market valuations and performance.
In this piece, we highlight five key considerations for investors with private market allocations in this environment and discuss the potential implications.
5 key considerations for investors with private market allocations:
1. Valuations
Trump’s tariffs are generally expected to weaken growth and drive up prices as companies grapple with higher costs from supply chain disruptions. The extent of this disruption will hinge on various factors, notably the duration and the eventual resolution achieved, but significant pressure on company profits and performance is anticipated in the short-term.
Due to delays in reporting, any impact on private market valuations is expected to take a while to feed through. Significant moves in valuations over the near-term are unlikely, however, as the price of these assets is typically estimated using an accounting approach which is more of a reflection of fundamental value, so tends to be more stable over time. Nonetheless, private asset valuations would not be immune to a period of prolonged economic stress, given, as mentioned above, factors such as rising capital costs affecting underlying sectors and companies
2. Robustness of manager underwriting
The implications of the tariffs are likely to manifest unevenly across private market portfolios, depending on asset class, sector focus, and geographic exposure. Private credit, infrastructure, and private equity strategies with concentrated exposure to tariff-sensitive industries or regions—such as export-driven manufacturing —may experience more pronounced performance dispersion. As macroeconomic pressures ripple through these areas, manager performance is expected to bifurcate: those who demonstrated underwriting discipline, maintained conservative leverage assumptions, and incorporated robust downside protection in a benign credit environment are likely to prove more resilient.
In this context, investors should take a proactive approach to understanding their underlying exposures—both at the asset and manager level. This includes identifying potential vulnerabilities and sensitivities within portfolios and assessing how managers are adapting to shifts in input costs, supply chain dynamics, and cross-border trade flows. Scrutiny of portfolio construction, risk mitigation strategies, and the timeliness of manager reporting will be essential in navigating the longer-term consequences of the tariff regime within private market structures.
3. Risk monitoring and oversight
Credit spreads for publicly traded bonds have widened since the tariffs were announced, reflecting an increase in the market’s perceived risk of borrowers’ creditworthiness. Although credit spreads for private loans are less directly observable, it is also reasonable to expect that risk premia have similarly widened in private credit markets
However, the nature of private credit – with bespoke structuring, direct borrower engagement for instance - means it can be more difficult to assess stress in the market, and more traditional measures, such as the default rate, are less relevant given private credit managers work closely with underlying borrowers and can amend loan documentation before a default occurs. As such, a more tailored and forward-looking approach to monitoring is essential. An effective reporting and monitoring process should go beyond headline figures to encompass a broader range of metrics. This system may include measures that look at, for example, average interest coverage ratio, gross/net realised losses, non-accruals, payment-in-kind as a percent of total interest received and the number of portfolio credits on manager watch-lists.
While this approach is particularly critical for private credit, similar principles apply to other areas of private markets including infrastructure debt and real estate lending where, while cashflows are contractual, these can be sensitive to macroeconomic shifts. Tailored risk oversight frameworks per each area of private markets is therefore key, particularly during challenging and complex market environments.
4. Distributions and exits:
Investors have experienced a slowdown in distributions received from private market holdings since 2022, particularly within private equity and real estate, as managers have struggled to secure exits on assets as the end of fund lives approach. This issue is expected to be compounded by the US tariffs, as dealmaking remains subdued due to elevated uncertainty and higher expected financing costs.
Investors, particularly those with private equity and real estate exposures, should therefore ensure cashflow projections from these allocations are conservative. Given the illiquid nature of these assets, the timing and magnitude of distributions can be unpredictable, particularly in periods of market stress or slower exit activity. As such, relying heavily on projected cashflows from these investments to meet near-term liquidity needs or capital obligations may introduce undue risk.
5. Secondaries market
The impact of US tariffs may drive increased activity on secondary markets as investors adjust and rebalance portfolios to align with the evolving macroeconomic landscape and trade dynamics. Some may seek to generate liquidity by selling private holdings using the secondaries market, while others – particularly those with capital to allocate and a flexible mandate – will be well placed to capitalise on the opportunities this will generate, exploiting dislocations and pricing inefficiencies. We expect to see meaningful near and medium-term buying opportunities in both the GP and LP-led space, including continuation vehicles and portfolio realignments. For reference, a few months ago, we published a research piece on the rise of private credit secondaries, exploring the market dynamics and the role these can play in investors’ portfolios, which we highlight as an opportunity in view of their relevance, notably in the current market environment.
In this environment, investors should consider leveraging the secondary market as not only a source of liquidity, but as a strategic tool to optimise portfolio construction, enhance diversification, and capture potentially attractive entry points in high-quality assets, to achieve their portfolio objectives.
Implications for private market allocators:
- Private market investors should be cautious in interpreting NAVs and performance as reflective of market conditions given the lagged valuation cycles;
- Periods of market stress tend to bring to the fore underwriting discipline; those managers having maintained robust and conservative underwriting approaches are more likely to deliver through the cycles;
- Credit risk in private markets requires a more tailored approach than in public markets, incorporating metrics beyond headline figures to identify early signs of stress/distress;
- Private market investors should ensure cashflow projections are prudent and not overly relied on to meet cash obligations as the pace and predictability of private market distributions will likely decline amidst weaker exit environments
- Private market investors should also consider leveraging the secondary market as both a liquidity and a strategic tool offering potentially significant opportunities.
About Apex Investment Advisory:
- Based in London, our independent investment advisory team with c.$100bn in assets under advisory has deep knowledge of investments and alternatives and global reach as part of the Apex Group.
- Our tailored services include independent investment advice, strategy reviews and portfolio construction advice, manager research and selection, investment and operational due diligence, as well as other bespoke analytical projects.
- Formed over 35 years ago, we have a long track record and deep experience in alternatives and private markets, working collaboratively with institutional investors such as public sector pensions, sovereigns, corporates and family offices to provide tailored services for their portfolios and private market investments.
- Having worked through multiple cycles, with deep knowledge of the market, we are well placed to assist investors assess their portfolios and help them navigate the current market turmoil.
To further explore how we can assist in meeting your objectives, please contact us.
