Private Equity Firms Face 30% Fundraising Drop Amid Tariff Uncertainty

Private equity firms are currently facing challenges in returning cash to investors and raising new funds. The industry is eagerly awaiting a surge in mergers and acquisitions (M&A) activity, which has been slow to materialize. In early March, several private equity executives at a conference in downtown Manhattan urged calm, assuring the audience that the overall economic and regulatory outlook remained positive despite the tariff barrage initiated by President Donald Trump.

After a few sluggish years for deals, Wall Street had anticipated that deregulation and lower taxes in the era of Trump 2.0 would unleash a banner year for M&A in 2025. Jonathan Gray, COO and president at private equity behemoth Blackstone, predicted on stage in March that despite the current uncertainty, the year would end with increased activity. However, tariff uncertainty has so far stifled any dramatic surge in activity. About 4,500 U.S. deals worth roughly $570 billion have been announced through May, in line with trends last year. While the M&A market is showing signs of life as it moves back toward pre-pandemic norms, the situation appears to be a far cry from 2021, when American firms had already entered 5,800 transactions valued at nearly $1 trillion in the first five months of the year.

Meanwhile, PE firms are finding it more difficult to raise new funds as they take longer to return capital to existing investors. At the end of the first quarter, fundraising had fallen 30% year-over-year to $462 billion. Weak deal activity and “anemic” distributions to so-called limited partners, or PE investors commonly referred to as “LPs,” were blamed for the slowdown. However, Blackstone managed to lead the industry in Q1 by raising $21 billion for its ninth flagship fund, down slightly from the $26 billion committed to the fund’s predecessor.

Despite the challenges, the long-awaited M&A boom may still be on the horizon. In a May survey of nearly 700 CFOs and other executives, roughly half said they were in the early stages of deals. Thirty percent of respondents said they had been forced to pause or revisit transactions due to tariff issues. There is a level of indecisiveness that is still quite high, but it’s not as though they don’t see the opportunity. It’s not as though they don’t see the need for it. There are just things that are getting in the way. Nearly 60% of the executives surveyed said they were missing opportunities because they can’t make decisions fast enough. As economic and trade policies come into focus, there will be a tremendous amount of pickup here in volume.

There are signs of optimism when it comes to big-money transactions. In May, U.S. buyers announced more mega deals of $5 billion-plus than during any month over the past three years. Blackstone is making the second biggest of those acquisitions with plans to buy TXNM Energy for $12 billion. Those who can withstand the uncertainty are starting to get busy, and they’re doing really big things. Everybody else is waiting for the clouds of uncertainty to clear.

Secondary sales could spur more PE exits. It appears as if that can’t happen soon enough for much of the private equity world. Fund managers are taking longer to generate the market-beating returns investors have paid for, and, as a result, LPs have less money to throw around. The amount of time PE firms have held onto their assets—before hopefully flipping them for a profit—has climbed steadily since 2018. More than 30% of portfolio companies are now held for over five years or longer, and the median holding period of 3.5 years is the highest it’s been in at least a decade. Combined with higher interest rates, fund managers need to find higher earnings growth from their portfolio companies to generate adequate returns for investors.

Meanwhile, when it comes to new investments, tighter conditions force firms to pick their spots. For example, if a large multinational company makes a strategic move that fails to pay off within two years, it will likely survive. For a fund manager, however, it quickly becomes tough to make up for bad bets. I have to prolong my hold period, which means I have to create a disproportionate amount of growth. One sign of this slowdown has been a surge in so-called secondary transactions, when LPs sell some of their private equity stakes—often at a discount. Notable institutional sellers include the endowments of elite universities. Fund managers, then might have the flexibility to start moving on from old portfolio companies, understanding the market is pricing in a hit to past expectations. I think that could actually unlock some of the sales that are packed up. And then maybe the deluge of deals will finally arrive.