Private Equity Under Trump v2: Risk, Responses, & Resilience

As U.S. President Donald Trump crosses the 140-day mark of his second term, the U.S. and global economic mood deeply contrasts that of the first weeks following his decisive election victory in November. Then, private equity (PE) leaders welcomed an administration they hoped would bring tax reform, deregulation, and widespread economic growth that would produce a potent deal-making environment. Today, however, PE leaders, along with the wider market, face rising uncertainty amid unpredictable and frequent changes to policy, including global trade disruptions and a macroeconomic environment that is increasingly at odds with the aggressive globalist expansion strategies seen over the last decade. PE firms are reassessing risk and recalibrating expectations under President Trump's evolving economic agenda, but the nature of the industry may have PE better positioned to weather the changing tides than others across high finance and asset management. In this piece, we take a deeper look.

Strategic Shifts and Deal-Making Pressures

Private Equity firms are increasingly contending with headwinds that are squeezing both ends of transactions. On the front end, global trade disruptions stemming from President Trump's tariff expansions have lowered earnings forecasts across a multitude of sectors and industries. Buyout activity has sharply slowed. Bain & Company reports in its PE Mid-Year Report that April's buyout deal count was down 22% compared to the monthly average across Q1 2025. On the back end, exits face similar challenges. IPO markets are all but frozen, and both secondary buyouts and strategic sales alike face increasing valuation gaps, as buyers price in uncertainty and risk in their evolving models.

These transaction pressures are exacerbating an increasingly pronounced issue in PE: liquidity. With funds' portfolios aging and slowed exit activity, general partners (GPs) face mounting hurdles to return capital to limited partner (LP) investors -- a prerequisite for launching new fundraising rounds. LPs, meanwhile, bracing for wider market volatility, are reevaluating asset allocations and seeking increased portfolio liquidity. While some LPs are considering the secondaries market as a means to achieve liquidity by offloading their exposures, it remains relatively insubstantial, comprising just 5% of global PE assets under management according to the Bain report.

Despite these challenges, however, PE's long-term nature as an asset class allows for resilience to volatility that other assets, like public equities, simply cannot match. Whereas publicly traded corporations and their executives are at the constant mercy of short-term share price fluctuations, quarterly earnings results, and more frequent information disclosures, longer PE fund models benefit from a wider horizon to create value, coupled with a stable ownership model. PE firms are now adopting a nimble but calculated "move when ready" approach. Many are avoiding panicked, clearance-sale exits and are instead opting to extend holding periods, further enhancing portfolio company operations and building up their competitive edge to bolster exit values.

Fund managers are also pivoting strategies around diligence and underwriting. With $1.2 trillion in dry powder (Bain) lingering across the industry, firms are under pressure to deploy their capital, but they are doing so much more selectively. Market conditions demand enhanced due diligence practices that include assessments of target company tariff exposure, procurement risk, and sensitivity to geopolitical changes. Further, thanks to the often greater transaction structure flexibility available in PE, even companies with disrupted earnings or temporarily compressed margins are not disqualified from deal consideration. In fact, for many buyers, these companies represent an opportunity to capitalize on lower valuations to create stronger long-term return profiles. Paired with strategic improvements to operations and supply chain reconfiguration, deal terms incorporating earnouts and material adverse effect (MAE) clauses to align the interests of buyers and sellers are a key to reigniting buyout activity and producing successful portfolio companies.

PE must act intentionally but carefully to succeed in its dual mandate to reignite deal-making without overcommitting in a turbulent environment. The coming quarters will test how well firms can adapt to changing dynamics, deploy capital in high-potential areas, and embrace new transaction strategies to build sustainable operational excellence and unlock long-term returns. For both LPs and fund managers, the question is not when the rebound comes, but who will have the competitive edge when it does.

Tactical Adjustments by Portfolio Companies

Portfolio companies are currently responding to policy volatility through a blend of tactical actions. Those recalibrating their longer-term operations stand to benefit from enhanced resilience and larger margins. As an immediate response, companies are accelerating sourcing diversification efforts. This includes a mix of both onshoring and selective relocation of production and purchasing to geographies with more favorable trade policy. Portfolio companies are also deploying "tariff engineering," in which firms reclassify products by altering material composition, packaging, or assembly practices to be categorized under milder tariff codes. Additionally, many companies have raced to frontload imports of critical production inputs before new tariffs take full effect, providing a temporary inventory buffer against the effects of increased supply chain disruptions and rising costs. These interim fixes are valuable short-term tactics, especially as President Trump repeatedly shifts course on tariff negotiations, but as broader headwinds bring a larger economic paradigm shift, they provide only partial insulation against coming changes.

As the U.S. and perhaps even global policy climate retreats from multilateralism, long-term competitiveness will depend increasingly on structural improvements in productivity and operational flexibility. Many portfolio companies are investing in smart manufacturing practices that integrate advanced data analytics, robotics, and agile manufacturing - changes that will drive up output efficiency and lower their dependencies on foreign goods and imported production components. At the same time, portfolio companies are increasingly leveraging AI and digital platforms to enhance forecasting accuracy, automate manual workflows, and generate operating leverage that will amplify future margins. These forward-looking upgrades will not only leave companies better equipped to absorb policy shocks, but also make them highly marketable at the exit stage.

Watching the Senate - Carried Interest

Private Equity professionals are also paying close attention to the progress of President Trump's One Big Beautiful Bill Act as it advances to the Senate floor. While the bill has limited direct impact on PE fund operations, one provision under scrutiny is the potential change to the tax treatment of carried interest -- the portion of profits from an investment exit that is paid to a fund's GPs if a certain return threshold is reached.

Carried interest is taxed at the individual level. Under PE conditions, it is typically treated as a long-term capital gain - subject to a lower maximum federal rate of 20%. Trump's Tax Cuts and Jobs Act of 2017 extended the holding period required to receive this tax treatment for exit proceeds from one year to more than three years, a change widely viewed within the industry as a workable compromise.

The new bill, as passed by the House, leaves this precedent untouched. However, tax writers have long expressed skepticism over how PE structures its compensation. As the bill now heads to the Senate for further review and negotiation, PE leaders remain cautious, recognizing that modifications could still emerge before the legislation reaches the White House.

Final Remarks

Ultimately, in the face of mounting policy uncertainty, PE's long-term structure, operational control, and favorable tax treatment offer it distinct resilience as an asset class. While deal activity has slowed and fundraising cycles have tightened, firms are leaning into strategic flexibility -- refining underwriting standards and deal terms, extending holding periods, and investing in portfolio company improvements that position them for stronger exits. In a market defined by unpredictable timing, PE's capacity for disciplined adaptation and its focus on deep, sustainable value creation may prove to be its most powerful differentiators.

Sources

• Title image: iStock.com/Wasan Tita

• Axios. Private Equity and Carried Interest Under Trump. Axios.com.

• Bain & Company via PR Newswire. Private Equity Upturn Hit by Tariff Turmoil, but Winning Firms Will Lean into Turbulence. PRNewswire.com.

• CLA (CliftonLarsonAllen). The Impact of Trump's Tariffs on Private Equity Firms' Portfolio Companies. CLAConnect.com.

• Neuberger Berman. Key Implications of Trump 2.0 for Private Equity. NB.com.

• Pillsbury Law. No Changes to Carried Interest in "Big Beautiful Bill"---So Far. PillsburyLaw.com.

• Private Equity International. Private Equity's Key Tenets Will Be Put to the Test Under Trump. PrivateEquityInternational.com.