Geopolitical Risks and the Surge in Private Markets: Navigating Trade Tensions Through Strategic Allocations

The escalating U.S.-China trade war, marked by tariff escalations, export controls, and geopolitical brinkmanship, has reshaped global capital flows. Institutional investors are increasingly turning to private credit and real assets to mitigate risks and capitalize on opportunities arising from this new economic order. Here's why this shift is happening—and how investors can position themselves for gains.

The Geopolitical Landscape: A Minefield for Public Markets

As of June 2025, U.S.-China trade tensions have reached a boiling point. Steel tariffs now stand at 50%, while reciprocal tariffs on goods have been slashed to 10% temporarily—a fragile truce that expires in July. Meanwhile, China's rare earth export controls and U.S. tech bans on semiconductors have disrupted supply chains, creating volatility in public equity and bond markets.

The fallout? Investors are fleeing equities and traditional fixed income, which remain tethered to geopolitical whims. The S&P 500's year-to-date performance, for instance, reflects this uncertainty, while bond yields have flattened amid recession fears.

Why Private Credit is the New Safe Haven

Private credit—a category encompassing loans to mid-market firms, real estate, and infrastructure—is experiencing a surge. Projections suggest the sector could hit $2.8 trillion by 2028, fueled by two key trends:
1. Bank retreat: Post-2023 regional banking crisis, traditional lenders have pulled back from high-risk borrowers. Private lenders are stepping in, offering tailored financing solutions.
2. Yield-hungry investors: With public bond yields near historical lows, private credit's average 8–12% returns are a magnet.

This gap is widening. For example, the VanEck BDC Income ETF (BIZD), which tracks business development companies, has outperformed the Bloomberg Aggregate Bond Index by 400 basis points annually since 2020.

Key sectors: Healthcare (e.g., aging populations driving demand for medical facilities), technology (AI infrastructure financing), and energy transition projects (e.g., EV battery plants) are top targets.

Real Assets: Inflation Protection and Tangible Value

Real assets—like farmland, data centers, and renewable energy—are also booming. Their appeal? They offer:
- Inflation insulation: Physical assets retain value during price spikes.
- Low correlation to stocks: Real estate and infrastructure have little to no exposure to tariff-driven supply chain disruptions.

Consider China's rare earth dominance: While public equities in mining face geopolitical headwinds, private investments in alternative rare earth suppliers (e.g., Australia's Lynas Corp) are thriving.

How to Access These Markets

Institutional investors have long dominated private markets, but democratization is underway:
- ETFs: The BIZD ETF (mentioned earlier) offers liquid exposure to private credit via BDCs.
- Private equity funds: Firms like Blackstone and KKR continue raising capital for infrastructure and real estate deals.
- Direct lending: Sophisticated investors can co-invest in structured loans backed by hard assets (e.g., mortgages on logistics hubs).

Risks and Due Diligence

No asset class is immune. Risks include:
- Recession vulnerability: Over-leveraged borrowers may default if growth slows.
- Manager quality: Not all private lenders are created equal—focus on firms with strong underwriting track records.

Strategic Allocation Advice

1. Core portfolio diversification: Allocate 5–10% of your portfolio to private credit via ETFs like BIZD.
2. Sector picks: Prioritize healthcare and energy transition infrastructure, which are less cyclical.
3. Avoid the “anything goes” trap: Stick to assets with tangible collateral (e.g., real estate loans) or recurring revenue (e.g., data centers).

Conclusion: Riding the Wave of Geopolitical Uncertainty

The U.S.-China trade war isn't ending soon. For investors, this isn't a threat—it's an opportunity. By shifting capital into private credit and real assets, you can sidestep public market volatility while capitalizing on structural demand for yield and inflation protection.

The key? Think like a private market investor: focus on income streams with real-world anchors, and avoid betting on geopolitical outcomes. The private markets boom isn't just a trend—it's a new era of investing.

Disclaimer: Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.