Bain Report Says Tariff Turmoil Crushes Private Equity's Q2 Momentum

Notes: Includes closed-end and commingled funds only; buyout category includes buyout, balanced, coinvestment, and coinvestment multi-manager fund types; includes funds with final close and represents the year in which they held their final close; excludes SoftBank Vision Fund; other category includes fund of funds, mezzanine, natural resources, and others; data as of May 16, 2025 Sources: Preqin; Bain analysis

What's New

Private equity dealmaking lost significant steam in the second quarter of 2025 after tariff policy announcements triggered widespread market volatility. According to Bain & Company's Private Equity Midyear Report 2025, deal values in April dropped 24% below Q1 monthly averages while deal counts fell 22%, with the IPO market essentially shutting down as companies like Klarna paused public offering plans amid trade uncertainty.

Why It Matters

The slowdown exacerbates an already critical liquidity crisis plaguing the industry, where recent fund vintages consistently lag historical benchmarks for returning capital to investors. With $1.2 trillion in dry powder waiting deployment and mounting pressure from limited partners demanding full exits over partial transactions, PE firms face their most challenging operating environment in years.

Big Picture Drivers

• Policy Uncertainty: April 2 tariff announcements shattered investor confidence just as market predictions were stabilizing after five years of shocks

• Liquidity Crunch: Fund distributions trail historical benchmarks, with 2018 vintage funds at 0.6x distributed-to-paid-in capital versus expected 0.8x

• Capital Scarcity: Over 18,000 private capital funds seek $3.3 trillion globally, creating $3 of demand for every $1 of available supply

• Geographic Shifts: Canadian and European investors increasingly reducing US exposure in favor of European allocations amid trade tensions

• Exit Bottleneck: Strategic buyers sitting sidelines while would-be sellers delay transactions, constraining traditional exit channels

By The Numbers

• $1.2 trillion: Buyout dry powder awaiting investment, with 25% available for four+ years

• 24%: Drop in April deal values compared to Q1 2025 monthly average

• 60%: Limited partners preferring conventional exits over alternatives like dividend recaps

• $5 billion: Largest secondary sale by NYC pension systems as LPs seek liquidity solutions

• 170%: How much larger North American PE assets are versus Europe, despite only 20% GDP difference

Key Trends to Watch

• Secondaries Surge: More institutional investors turning to secondary markets for portfolio rebalancing as China Investment Corporation seeks buyers for $1 billion in PE investments.

• Fund-Raising Freeze: No buyout funds exceeded $5 billion in Q1 2025, marking the first such quarter in a decade as capital deployment stalls.

• Value Creation Imperative: PE firms increasingly focused on operational improvements and cost control as valuation multiple expansion becomes unlikely.

• Strategic Opportunism: Deals like 3G Capital's $9 billion Skechers acquisition emerge from market dislocations as share prices plummet on trade fears.

The Wrap

While tariff turbulence has disrupted PE momentum, the market's fundamentals remain intact with patient capital and strategic buyers still active. Success will favor firms excelling at proactive dealmaking and operational value creation, particularly those able to navigate the new post-globalized era while managing extended holding periods and refreshed value-creation strategies for portfolio companies.