Bain Private Equity Midyear Report 2025: Navigating Tariff Turbulence and Liquidity Pressure

Private Equity in 2025: A Tale of Two Quarters

The Bain Private Equity Midyear Report 2025, authored by Hugh MacArthur, Or Skolnik, Brenda Rainey, and team, paints a vivid picture of an industry caught between optimism and upheaval. The first half of 2025 delivered two starkly contrasting quarters that encapsulate the contradictions facing global private equity markets.

The year began with genuine momentum carried over from 2024’s improvement. Credit markets were open, debt was cheaper, inflation appeared contained, and interest rates were trending downward. Q1 2025 delivered buyout deal count roughly in line with 2024’s positive trend, while deal value reached its highest level since Q2 2022 — boosted by landmark transactions including Sycamore Partners’ $23.7 billion acquisition of Walgreens Boots Alliance.

Exits similarly surged in Q1, propelled by sales to strategic buyers. GTCR’s sale of a majority stake in payment processor Worldpay to Global Payments in a $24.25 billion deal and Mubadala’s $13.4 billion sale of Nova Chemicals demonstrated that the exit pipeline could still produce significant transactions when market conditions aligned.

Then came April 2nd. Tariff announcements triggered volatility across global capital markets, and the relatively upbeat start to 2025 evaporated. The value of deals announced in April plunged 24% below the Q1 monthly average, while deal count fell 22%. For context on how these market dynamics interact with broader financial sector trends, see our analysis of the Bain Global Private Equity Report 2026.

The PE Liquidity Crisis: Mounting Pressure on Exits

The Q2 slowdown has intensified what Bain identifies as the most critical issue facing the private equity industry: a persistent and worsening liquidity crisis that affects every participant in the ecosystem.

Recent fund-raising vintages are consistently lagging historical benchmarks for returning capital to limited partners. The data is stark: for US and Western European funds raised in 2018, the distributed-to-paid-in capital (DPI) ratio stands at approximately 0.6x versus a historical benchmark of about 0.8x. This gap represents billions of dollars in unrealized returns trapped inside fund structures.

The consequences cascade through the industry. LPs cannot realize returns, access cash, or rebalance portfolios in response to market gyrations. GPs must spread managerial resources across more portfolio companies while slow distributions impede fresh fund-raising. Extended holding periods make it increasingly difficult for GPs to progress from management fees to carried interest, given the challenge of meeting return targets over longer timeframes — which in turn affects their ability to reward and retain talent.

The report reveals a significant sentiment shift among LPs. In a recent poll of Institutional Limited Partners Association (ILPA) webinar participants, more than 60% said they would prefer conventional exits over alternatives such as dividend recapitalizations, even accepting valuations below recent marks if necessary. This represents a decisive rejection of the partial exit strategies that some GPs have employed to manage the liquidity squeeze.

Tariff Impact on Private Equity Dealmaking

The tariff turbulence that began in early Q2 has fundamentally altered the dealmaking landscape, though Bain emphasizes that the market is shaken but not broken.

The most immediate and visible impact was on the IPO channel. The already subdued market for initial public offerings essentially shut down, with offerings postponed or canceled amid the uncertainty. Swedish fintech Klarna — backed by Sequoia Capital, Silver Lake, and Permira — reportedly paused its plans for a US IPO in early April. While IPOs represent a small fraction of total exits by number, they serve as critical exit pathways for the largest portfolio companies.

Several factors constrain dealmaking in the current environment. Companies most affected by tariffs face direct operational challenges that preclude M&A activity. Some strategic buyers, particularly infrequent acquirers, have moved to the sidelines. Would-be sellers may defer transactions hoping for improved conditions. And there is no shortage of operational distractions — from managing day-to-day tariff impacts to scaling generative AI deployment — that divert management attention from deal processes.

Yet the fundamental market mechanics remain intact. Debt markets remain open for quality assets. The $1.2 trillion of buyout dry powder waiting to be invested creates enormous pressure to deploy capital, with almost a quarter of that sum available for four or more years, making deployment increasingly urgent. As documented in our analysis of banking risk management in 2025, the intersection of geopolitical volatility and financial market dynamics is creating both risks and opportunities for sophisticated investors.

Fund-Raising Challenges in Private Equity Markets

The report documents how private equity fund-raising remains under significant strain despite pockets of strength in categories like secondaries and infrastructure.

Global buyout fund-raising may narrowly avoid a sixth consecutive quarter of decline — but the headline masks deeper concerns. Not a single buyout fund closing in Q1 2025 exceeded $5 billion, the first time in a decade that this quarterly threshold has been missed. This unwanted milestone illustrates two converging trends: declining average fund sizes and fewer fund closings.

The supply-demand imbalance in private capital markets is extraordinary. Over 18,000 private capital funds are currently on the road, collectively seeking $3.3 trillion in commitments. This means there is approximately $3 of demand for every $1 of available supply — a ratio that ensures intense competition for LP allocations and continued pressure on fund terms and structures.

Investor sentiment data from a Campbell Lutyens survey in April reveals shifting allocation preferences. 28% of LPs plan to increase allocations to private credit, while 20% expect to boost infrastructure exposure. Against this cautious backdrop, 33% of LPs reported slowing their private market investments in response to US tariffs, with 8% pausing entirely.

Geographic preferences are also shifting. While North America’s nominal GDP is roughly 20% larger than Europe’s, North American PE assets under management are approximately 170% larger — a gap that some investors are beginning to question. About a third of Canadian and European LPs expect their PE allocations to become less weighted to the US and more to Europe, a rebalancing driven by trade tensions and geopolitical considerations.

The Secondaries Market: Growing but Insufficient

The report examines the secondaries market as a liquidity mechanism, finding it increasingly active but fundamentally insufficient to resolve the industry’s broader liquidity needs.

LPs are increasingly taking liquidity into their own hands through secondary sales. Notable recent transactions demonstrate the scale of this activity: China Investment Corporation reportedly sought secondary market buyers for approximately $1 billion in PE investments managed by US firms. Yale University confirmed it was exploring sales of private equity fund interests from its endowment. New York City pension systems completed a $5 billion secondary sale in May, described as a “strategic realignment” of their PE portfolio, with Blackstone reportedly serving as lead buyer.

These transactions are driven by a combination of factors: geopolitical considerations prompting portfolio rebalancing, macroeconomic concerns about extended holding periods, and individual cash flow needs. The secondaries market certainly offers bargain-hunting opportunities for investors with fewer liquidity constraints. However, even with strong growth momentum, secondaries amount to less than 5% of private equity assets under management globally — far too small to serve as a primary liquidity solution for the industry.

The structural reality is that the industry needs more full exits, not more secondary market activity. While secondaries provide valuable flexibility for individual LPs, they merely transfer illiquidity from one investor to another rather than generating genuine distributions from portfolio company realizations. As explored in our BCG Global Asset Management Report analysis, the evolution of alternative asset markets is reshaping how institutional investors think about liquidity, duration, and portfolio construction.

Strategies for PE Firms in Turbulent Markets

Bain’s analysis concludes with strategic guidance for PE firms navigating the current turbulence, emphasizing that disruption creates winners and losers — and the best opportunities often emerge during moments of maximum uncertainty.

Proactive Dealmaking is the primary recommendation. When wait-and-see is the default mode, it pays to be a catalyst. The report cites 3G Capital’s announcement of its $9 billion acquisition of Skechers — completed less than two weeks after the US footwear maker withdrew financial guidance due to trade uncertainty that had seen its shares drop as much as 44% below their 2025 peak. This exemplifies the opportunity available to prepared, decisive buyers.

Sponsor-to-Sponsor Transactions represent a particularly promising avenue. Buyers can be proactive in approaching GP sellers who face liquidity pressure, recognizing that GPs are increasingly making trade-offs between maximizing returns and providing LP liquidity. The alignment of buyer opportunity with seller urgency creates a productive dynamic that can overcome the pricing gaps that have stalled many potential transactions.

Value Creation Focus becomes paramount when valuation multiples won’t expand on their own. The report emphasizes that PE firms must prioritize improving earnings at portfolio companies through a combination of cost control and revenue acceleration. Generative AI is enabling productivity improvements that weren’t possible even a few quarters ago, offering fresh cost optimization opportunities even at companies where efficiency programs have been recently completed.

Enhanced Due Diligence must now incorporate tariff scenario analysis as a core component. Firms need to assess not just the short-term effects of tariffs on a company’s demand, competitiveness, and margins, but also the long-term ability to adjust to a new, post-globalized era. This represents a structural change in diligence methodology that will persist regardless of specific tariff outcomes.

Key Data Points from the Bain PE Report

The report provides several critical data points that quantify the state of global private equity markets in 2025.

$1.2 trillion in buyout dry powder remains uninvested, with nearly 25% available for four or more years. This capital overhang creates both opportunity (deployable resources) and pressure (fee drag on undeployed capital and LP expectations for deployment).

$23.7 billion — the size of Sycamore Partners’ acquisition of Walgreens Boots Alliance, one of the largest PE transactions in recent years and a contributor to Q1’s elevated deal value.

$24.25 billion — the value of the Worldpay-Global Payments deal facilitated by GTCR’s exit, demonstrating that strategic exit channels can still produce landmark transactions.

0.6x DPI for 2018 vintage funds versus a historical benchmark of approximately 0.8x, quantifying the magnitude of the liquidity shortfall facing the industry.

18,000+ funds on the road seeking $3.3 trillion in commitments, creating a 3:1 demand-to-supply ratio that defines the competitive fund-raising environment.

33% of LPs slowing private market investments in response to tariffs, with 8% pausing entirely — a significant shift in institutional sentiment documented by the Campbell Lutyens survey. These findings align with the broader investment landscape analysis in our financial services regulatory outlook for 2026.

Outlook for Private Equity in Late 2025 and Beyond

The private equity outlook for the remainder of 2025 and into 2026 depends critically on three factors: the resolution (or continuation) of tariff uncertainty, the trajectory of interest rates and credit markets, and the ability of GPs to accelerate exits and generate LP distributions.

On tariffs, the report notes that there is little prospect of the world returning to its pre-April certainties, even if recent tariffs are fully or partially rolled back. The mere demonstration that trade policy can shift dramatically and unpredictably has permanently altered risk perceptions and due diligence requirements. Tomorrow’s winners will be firms that can navigate this structural uncertainty rather than waiting for it to resolve.

Credit market conditions remain supportive for quality assets, and the report suggests that debt financing for well-structured transactions should remain available throughout 2025. However, lenders are likely to be more selective, favoring companies with clearer tariff exposure profiles and demonstrated resilience to supply chain disruption.

Fund-raising recovery has likely been pushed out to 2026 or beyond. The emergence of private wealth as a source of LP capital offers long-term promise but will not resolve near-term fund-raising challenges. GPs must adopt more systematic approaches to fund-raising, moving beyond informal relationships to structured campaigns that articulate clear differentiation in an increasingly crowded market, as analyzed in the Bain & Company Private Equity practice.

Implications for Institutional Investors and Allocators

For LPs and institutional allocators, the Bain report signals a market that requires more active portfolio management and more nuanced manager selection than ever before.

The liquidity crisis demands proactive management. LPs waiting passively for GP distributions risk portfolio imbalances that compound over time. The report suggests that LPs should be willing to accept conventional exits at slightly below-mark valuations rather than prolonging holding periods in pursuit of marginal additional value — a pragmatic approach that prioritizes portfolio health over individual position optimization.

Geographic diversification is becoming a priority rather than an option. The concentration of PE exposure in North America, while historically justified by returns, now carries geopolitical risk that many institutional investors are eager to mitigate. European PE markets, while smaller, may offer attractive entry points and relative insulation from US-specific trade policy volatility.

Manager selection criteria are evolving. In an environment where multiple expansion no longer drives returns, operational value creation capability becomes the primary differentiator among PE firms. LPs should evaluate not just track records but the specific tools, processes, and talent that GPs deploy to improve portfolio company performance — including their ability to leverage generative AI for operational transformation, as discussed in our analysis of the McKinsey State of AI 2024 report.