Private Markets Outlook: Seizing opportunities amid uncertainty

• Recent US policy shifts have intensified market volatility and global fragmentation, reinforcing a ‘brave new world’ investment thesis. The outlook comprises two distinct phases, with significant differences between the near- and longer-term perspectives.
• In the near term, tariff policies are expected to dampen growth, particularly in the US. Although the base case is for tariffs to ultimately land much lower than ‘Liberation Day’ announcements, the path remains uncertain.
• Economic divergence between the US and Europe will persist. After recent US economic resilience, this divergence is expected to widen, particularly in near-term inflation and central bank policy. While inflation pressures are seen in the US, Europe’s disinflation trend should continue, allowing the ECB more room for monetary easing versus the Fed.
• The longer-term outlook for the US appears more positive from H2 2026 onwards, supported by policy clarity, tax cuts, and deregulation. Europe, particularly Germany, also shows promise through revised fiscal approaches.
• Private markets have demonstrated resilience, with secondaries offering opportunities amid liquidity constraints, infrastructure benefiting from inflation-linked revenues, and private credit gaining from higher base rates, while default rates remain contained.
• Despite headwinds in private equity direct transactions, investors skilled at navigating uncertainty can maximize emerging opportunities. Greater clarity on tariffs could spur an uptick in private markets activity in the second half of the year.
• This fragmented global landscape creates significant investment opportunities in onshoring and ‘friendshoring’ initiatives, though investors must navigate complex regulatory environments.

Introduction

Since coming into office just a few months ago, the new US administration has fundamentally reshaped the global economic landscape. Its policy shifts – from geopolitical realignments to the ‘Liberation Day’ tariffs – underscore our previously articulated thesis of a ‘brave new world’ of investing. This marks the end of an economic regime of macro moderation and expanding globalization, replaced by market volatility, higher interest rates, and global fragmentation.

Against this backdrop of rapid change, our midyear Private Markets Outlook offers two critical perspectives. First, we examine the immediate landscape, where recent developments have disrupted market dynamics. Second, we extend our view to assess the long-term structural shifts that will ultimately determine investment success. We conclude by examining the implications for private markets, with the aim to provide investors with tactical guidance for navigating the current turbulence and strategic vision for making the most of the transforming landscape.

The US administration’s new tariff policies are expected to weigh on global growth, with the most pronounced negative impacts likely affecting the US economy itself. While we do not forecast a US recession in our base case, we acknowledge that risks have increased. (See table for our Asset testing scenarios.)

Uncertainty will persist as tariff negotiations continue, but a more positive rhetoric emerging from US officials suggests a potential dampening of negative macroeconomic implications. Our base case projects that final tariff implementations will likely land closer to – or potentially milder than – the campaign promises that initially concerned markets.

For Europe, while we are less concerned about severe consequences, we note that any growth drag affects an economy already characterized by low growth momentum. In China, officials stand ready to unveil additional macroeconomic stimulus if needed in the second half of 2025, suggesting the net negative impact on the country will likely be moderate.

Tariffs are likely to widen the inflation gap between the US and other major economies. While tariffs are expected to be inflationary within the US, they represent a disinflationary force elsewhere. This creates a near-term outlook for the US that can be characterized as ’stagflation-lite’ – inflation above target combined with growth below potential. We caution, however, that several variables remain uncertain, including the extent of tariffs, possible retaliatory measures, and reaction functions of consumers and businesses. Meanwhile, other major economies will also experience a drag on growth, but with inflation moderating more than would have occurred without the tariff implementation.

The Federal Reserve (Fed) is in a challenging position, facing a delicate trade-off between expected weakening growth and upward inflation, making the US monetary policy outlook uncertain. Instead, the European Central Bank (ECB) is expected to remain on track with its easing cycle. Still, policy announcements out of the US related to tariffs have driven important repricing among market participants as depicted by forward curve expectations.

The actual development of each scenarios depends on many factors and may differ significantly.
Source: Partners Group (2025).

We are more constructive on the longer-term outlook for the US, barring a renewed tariff escalation or loss of faith in the US dollar. Clarity on trade policy, the push for tax cuts, potential deregulation, productivity gains from continued technology adoption, and Fed rate cuts should support economic activity, particularly from the second half of 2026 onwards. Nevertheless, US exceptionalism to the extent we have witnessed in the post-Global Financial Crisis era may have run its course.

For Europe, recent developments suggest potential for positive change. Germany has historically maintained conservative fiscal policies, but the revision of its so-called ‘debt brake’ has created new fiscal space. While our base case remains measured regarding the immediate impact of fiscal shifts, the ultimate growth impact from this European fiscal push could deliver substantial upside risk.

Ongoing developments in US trade policy are likely to accelerate and amplify the move towards a more fractured world, reinforcing our thesis of the ‘brave new world’. These structural shifts will fundamentally reshape investment opportunities and risks across private markets in ways that extend well beyond the current administration's term.

Despite macroeconomic challenges, some private market strategies should be well-positioned to capitalize on market volatility. We anticipate increased transaction activity across private markets in the second half of the year once there is greater clarity over trade-related concerns, particularly regarding tariffs.

The persistent liquidity constraints facing institutional investors should continue to drive robust activity in the secondaries market, potentially generating more attractive discount opportunities for disciplined buyers with available capital.

Private equity continues to face macroeconomic challenges, yet transaction activity may surprise on the upside as investors leverage current uncertainty to identify compelling opportunities. This environment underscores the need to test opportunities against adverse scenarios. Assets’ pricing power, product differentiation, and cash flow generation should remain crucial for maintaining margin stability. Furthermore, a focus on sector and regional diversification can help mitigate exposure to companies more vulnerable to tariffs. Sectors less tied to economic cycles that are service-oriented or rely on domestic supply chains are likely to be better positioned.

Infrastructure investments have shown resilience, offering inflation-linked revenue streams. European infrastructure may gain additional momentum as defense priorities evolve, demanding private capital for critical projects. This trend is already visible as budget constraints limit European countries' ability to meet defense spending targets through public funding alone, accelerating investment in defense assets.

Private credit strategies stand to benefit from US base rates remaining higher than post-Global Financial Crisis levels. Strong protective covenants combined with our expectation that a full recession will be avoided suggest contained default rates and a stable outlook for this asset class.

For portfolio companies, the reshaping of global trade requires both immediate tactical responses and strategic repositioning. Near-term, management teams must implement margin protection strategies, including supplier 'pain-sharing' agreements for tariff absorption and strategic price elasticity testing across customer segments. Longer-term, companies must prepare for worst-case scenarios by evaluating reshoring or relocating to lower-tariff geographies. Supply chain resilience will become a competitive advantage, requiring careful assessment of the economics of reshoring or regionalizing critical suppliers.

We believe the world has reached peak globalization – rather than deglobalization. Despite the recent increase in protectionist policies, we anticipate only a partial reshoring of manufacturing to the US. The enormous costs of shifting production, uncertainty around future tariff regimes, and continued cost advantages of imports in certain sectors (even with substantial tariffs) make wholesale reversal unlikely.

While we do not expect escalation to a global trade war, countries are increasingly facing strategic choices between the US and Chinese economic spheres. This bifurcation creates a ‘fractured world’ and carries significant implications. Inflation may become more volatile due to China's dominance in critical minerals. Capital flows will become increasingly politicized, as evidenced by the ‘America First Investment Memorandum’ that encourages investment from allies while restricting Chinese participation.

For private markets investors, this fractured world creates both challenges and opportunities. Supply chain reconfiguration will drive significant capital deployment into onshoring and friendshoring initiatives, benefiting assets in politically aligned regions. Meanwhile, companies will also need to navigate increasingly complex regulatory environments, with heightened scrutiny on investments touching national security concerns.