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Private Equity Investment Outlook Q2 2025: Amid uncertainty, small is beautiful
US policy changes and uncertainties surrounding AI-driven capital expenditures, as showcased by DeepSeek, have intensified volatility in listed markets. These developments pose significant risks to economic growth, inflation, and interest rates. With this backdrop, investors should focus on private equity strategies that exhibit characteristics such as favourable entry valuations, domestic market exposure and robust downside protection, while offering reduced correlation with public markets and the potential for additional risk premiums.
US policy changes create uncertainty
Following a three-year slowdown across private markets in terms of fundraising, new deals and exits, private market valuations and yields are generally attractive in both absolute and relative terms.
However, risks have increased sharply since the beginning of the year due to the US government’s policy changes and the uncertainties around their implementation and impact. This is most notable in relation to trade tariffs, immigration, ESG considerations, and a more isolationist stance regarding geopolitics and defense.
This has significantly increased volatility in listed markets and heightens near-term risks to economic growth, inflation and interest rates. The global repercussions of US policy changes are also likely to induce industry- and region-specific challenges, further contributing to continued increased volatility.
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