Partners Group Sees Opportunity Window in Market Volatility

What's New

Partners Group's Q2 2025 Private Markets Chartbook reveals a significant shift in the investment landscape as policy-driven volatility creates strategic buying opportunities for nimble private market investors. The report identifies a dual uncertainty emerging from recent policy directions affecting both economic growth trajectories and inflation expectations. According to Partners Group, active investors with broad market access are uniquely positioned to capitalize on this volatility through relative value opportunities across asset classes, while highlighting a growing divergence between US and European markets that creates regional arbitrage potential. The analysis suggests the secondaries market stands to benefit significantly from delayed exits and persistent liquidity needs.

Why It Matters

This changing landscape creates strategic opportunities for investors with the capacity to leverage relative value plays across asset classes, quickly adapt portfolio companies to economic challenges, and capitalize on differing trajectories between the US and European markets.

Big Picture Drivers

• Tariff implementation is creating a drag on growth while presenting near-term upward pressure on inflation, forcing corporations to choose between margin compression or passing costs to consumers.

• Immigration restrictions are contributing to labor market tightness and wage pressures, complicating economic outlooks and business planning.

• Consumer spending which previously drove US economic resilience is weakening as household sentiment declines across all income brackets, increasing recession risks.

• Corporate investment is slowing with lower capex plans across multiple US sectors as uncertainty and cost pressures mount.

• Monetary policy divergence between the US and Europe is emerging, with the ECB expected to cut rates more aggressively than the Fed, creating regional opportunities.

By The Numbers

• 2 rate cuts projected for the Fed in 2025, reaching a terminal rate of 3-3.25%

• 2-3 rate cuts expected from the ECB with a terminal rate of 1.25-1.5%

• -0.3% US GDP contraction in Q4 2024 vs. 1.6% growth in Euro area

• 30% of US household assets now held in corporate equities, near record highs

• 35% probability of US recession according to Partners Group analysis

Key Trends to Watch

• Wealth effect reversal could amplify economic slowdown as US households have record-high exposure to equities (30% of total assets), potentially forcing higher savings rates and reduced consumption if markets decline.

• Regional allocation shifts are warranted as Europe offers more attractive financing costs and stronger recovery in private equity buyout activity, while the US maintains higher nominal growth potential despite near-term headwinds.

• Secondaries market acceleration is likely as private equity exit delays increase liquidity pressures, creating opportunities for investors with available capital to acquire assets at favorable valuations.

• Infrastructure resilience continues with inflation-linked cash flows providing stability – Partners Group notes that during previous inflation periods, only 1 of their 90 infrastructure assets couldn't pass on higher costs.

• Private credit advantage persists as the asset class benefits from high base rates and likely higher spreads amid economic slowdown concerns, with emphasis on strong covenants becoming essential.

The Wrap

While uncertainty creates near-term challenges, private markets remain positioned as a "beacon of stability" according to Partners Group, with the current environment presenting opportunities for strategic investors to capitalize on long-term gains through diversification across geographies, sectors, and investment approaches.