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US private equity and closed-end funds face a number of difficulties in 2025, from macroeconomic uncertainty to operational complexity. At the same time, there are opportunities here, too. Lynne Westbrook, Head of Fund Services, and Portia Amato, US Regulatory and Compliance Practice Lead, discuss trends and challenges in the sector for the next 12 months and beyond.
What’s the situation like for private equity and closed-end funds right now?
Lynne Westbrook (LW): Generally, there’s still plenty of dry powder, but the market is seeing a slowdown in terms of fundraising as investors – especially institutional investors get a bit more selective. And then at the other end of the chain, there’s also been a slowdown on the exit side. I think we’ll continue to see difficulties around exits this year.
Is the Trump administration’s talk of tariffs and trade wars causing uncertainty?
Portia Amato (PA): In private equity, potential volatility does make it more difficult to make attractive deals because firms aren’t sure of their footing. Tariffs could mean some goods getting much more expensive in the US, which then has a knock-on effect for the companies producing them and their supply chains.
LW: I agree, it’s creating significant uncertainty. A lot of private equity firms have investments that rely on cross-border trade. Sudden tariff changes disrupt profitability. Whatever happens in the longer run, it’s a layer of complexity for investors who may decide to wait it out till they get more clarity. That may take at least the first couple of quarters.
We could also see private equity increasing its investments in companies that manufacture here in the US, because of the push towards ‘made in America’.
PA: The other side of that coin is the administration’s migrant policy. With lots of people leaving, will US companies have the workers they need? That’s another uncertainty.
Speaking of people, is there enough talent in the private equity sector to go round?
PA: Talent is certainly another challenge. The cost of hiring good people in the US is rising in leaps and bounds, so being able to tap into a global workforce is important for the sector’s profitability. Part of the attraction of offshoring is finding cheaper talent.
LW: Added to that, from the financial services side, we’re facing a demographic cliff here in the US because people are just not getting accounting degrees anymore. That skill set is becoming thin, which makes it very expensive.
PA: Talent is a problem that impacts private equity at every level. You have a talent shortage in the management firms themselves and also in the portfolio companies. If you can’t find product development or IT people at the right price, it’s harder to make a portfolio business more profitable, and that makes the fund less attractive.
LW: Private equity firms can take advantage of nearshoring and offshoring in terms of a cost play and because it provides a time advantage. If you have a ‘follow the sun’ model you can get work done more efficiently, come to market faster, and better understand your exits.
What will the regulator be focused on in this area?
LW: The SEC hasn’t abandoned the drive for greater transparency just because of the demise of the Private Funds Rule. The Institutional Limited Partners Association has released new reporting and performance templates to enhance data tracking and analytics, and institutional investors continue to push to get better, more timely access to information.
PA: Regulators are playing catch up, and struggling to keep up with new products and innovations in the space. Look at crypto, for example. It’s been around for a while and they still haven’t figured out how to regulate it, or even to properly identify the asset class.
LW: That reactive environment can be a problem for fund managers, because you see the SEC come out with enforcements even when the fund managers themselves have identified an issue, corrected it, made investors whole if necessary, and reported it. So, we see regulators moving in a more aggressive direction.
PA: The SEC has a level of consideration for self-reporting, so I’d always encourage firms to self-report rather than not. The regulator is seeing an opportunity to make examples of firms and set precedents to encourage the sector as a whole to take a closer look at compliance.
Where are the opportunities for private equity and other closed-end funds this year?
LW: Managers have to be smart and efficient; that gives them an edge. In terms of assets, Trump is very pro-business, so that might be good for domestic manufacturing, as we’ve said, but also infrastructure in all its forms. On the flipside, funds that lean towards ESG may lose popularity. But there’s a lot going on right now, so I think the best piece of advice might be to take some time and see how the dust settles.
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