Trade Deals Bring More Clarity to 2H25
Macro View I: Trade deal momentum has improved. The US now has a growing share of trade covered by deals, although tariff levels remain elevated compared to pre-2025.
Growing Trade Deal Coverage:
- The U.S. has negotiated new agreements, such as the EU–U.S. framework deal that consolidates former Most Favored Nation tariffs and sets a flat 15% rate on European goods—higher than before but still facilitating trade flows. This has allowed U.S.–EU trade to continue without major disruption, except for autos which still face higher rates.
- Meanwhile, the U.S. continues to pursue new or expanded agreements globally, aiming to diversify trade outcomes amid geopolitical uncertainty including efforts with Mexico, Mercosur, and other regional partners.
Tariff Levels Stay Elevated:
- U.S. average effective tariffs surged significantly in 2025. According to Yale’s Budget Lab, by early August, tariffs represented a pre-substitution increase of roughly 15.8 percentage points, reaching an overall effective rate around 18.2%, the highest since the 1930s.
- Alternatives estimate even higher peaks—with effective rates approaching 27% at one point in early 2025, marking a major departure from historical norms.
Implications for Private Markets:
Corporate Deal Activity is Holding Firm, Especially for Larger Transactions
Global IPO Resilience:
- In 1H25, 539 IPOs raised US$61.4 billion, up 17% year over year. The U.S. led the pack with 109 listings, its strongest first half since 2021.
- Cross-border listings hit record highs, accounting for 14% of total global IPOs, with 62% of U.S. listings coming from foreign issuers.
- The U.S. IPO market reopened strongly in fall 2025, with roadshows underway and investor confidence rebounding after earlier tariff-related jitters. S&P 500 and Nasdaq gains are supporting activity, especially among tech, fintech, digital asset firms, and AI players.
Mixed Yet Robust Global M&A Trends:
- Global M&A volumes declined by 9–13% in 1H25 compared to 1H24, but deal values surged 15–16%, signaling a preference for larger, high-quality transactions.
- The Americas dominated, with deal values increasing 17% and accounting for over 60% of global activity.
- Specifically in North America, M&A involving U.S. targets reached US$724 billion, a 23% jump from 2H24, with US$685 billion of that in the U.S. alone.
Deal Flow Expectations for 2H25:
- Many deals were “put on hold” and are expected to return strongly in 2H25 as uncertainty eases and equity markets remain elevated.
- In Europe, although early 2025 saw M&A share drop, recent infrastructure spending (e.g., Germany’s €500 billion defense plan) and fiscal stimuli are fueling optimism for a revival. Investors are showing renewed interest, especially from private equity (PE).
What This Means for 2H25 If Trade Clarity Continues?
| Factor | Implication |
| Renewed trade certainty | Encourages reactivation of IPOs and M&A deals by reducing policy tail risks. |
| Strong capital markets | U.S. equity market highs support IPOs—especially cross-border listings and high-growth sectors. |
| Focus on high-quality / large deals | Preference for fewer, but higher-value deals persists; lifting valuations and strategic exits. |
| Regional shifts | U.S. retains dominance in deal value; Asia-Pacific sees broad strength; Europe primed for resurgence via fiscal impetus. |
| Investor flexibility | Larger firms and PE-backed companies better absorb tariffs, enabling continued investment and deal-making. |
US Adjustment: Rising Inflation, Slowing Growth
Macro View II: Tariffs are pushing inflation up and pressuring growth.
Inflationary Effects on Consumers:
- At Fundopedia, we estimate that 61–80% of the new 2025 tariffs were passed through to consumers in the form of higher core goods prices, especially in categories like appliances, electronics, and home fixtures
- The Federal Reserve’s favored core PCE measure is up about 2.6–2.9% year on year, with ongoing pressure expected due to tariffs
- Some sectors are pushing through higher prices — we estimate that 67% of the tariff costs could be shifted onto consumers
Drag on Economic Growth:
- Early analyses (e.g., RSM) show tariffs could create a 0.5–0.75 percentage point growth slowdown, with a 0.6% one-time increase in prices
- Our projections, based on the Penn Wharton Budget Model, suggest a potential 6% reduction in long-run GDP and 5% drop in wages due to the tariff regime
- Tariffs are estimated to cut consumer purchasing power by about 3%, equating to a potential annual burden of several thousand dollars per household
Overall, tariffs are generating upward price pressure and straining economic momentum, with limited capacity for monetary or fiscal offset.
Implications for Private Markets:
Large and PE‑Backed Firms: Greater Resilience
- Larger corporations and PE-backed businesses typically retain stronger margin cushions, enabling them to absorb higher import costs better than smaller counterparts.
- Many PE portfolios concentrate on service-oriented and intangible-heavy sectors (like tech, healthcare, financial services), which are less directly impacted by tariffs compared to manufacturing-heavy industries
- Some PEs see the tariff-induced valuation pressure on distressed firms as strategic acquisition opportunities, especially if business fundamentals remain intact
- Despite policy uncertainty, exit activity remains robust (US$308 billion in 2Q25 exit deals), with a surge in public-to-private deals—notably in mid-cap consumer and software sectors—highlighting flexibility in deploying capital
Smaller Firms: Tight Spots and Consolidation Triggers
- Small businesses often lack the leverage, pricing power, or financial slack to absorb rising costs, making them more vulnerable to margin erosion
- Many firms hesitate to raise prices without tariff clarity, which ma yl lead to margin squeeze or lost market share if policy remains uncertain
- These vulnerabilities can drive M&A activity, particularly by cash-rich PE and strategic buyers looking to consolidate sectors, reduce fragmentation, and achieve scale efficiencies. The seafood industry, for example, shows strong consolidation with nimble players adapting to tariff challenges via scale and investment.
| Impact Area | Effect on Larger/PE-backed Firms | Effect on Smaller Firms |
| Inflation and cost pass-through | Absorb costs via strong margins and adjust strategies | Face direct margin pressure; risk of squeezed profitability |
| Growth and consumer demand | Better positioned to weather slow demand and invest in efficiency | Likely to face cash flow stress and delayed recovery |
| Deal opportunities | Able to pursue distressed acquisitions and build via consolidation | Targeted for takeovers or consolidation due to weaker performance |
| Sector exposure | Tilt toward service and tech sectors reduces tariff exposure | Often focused on trade-sensitive or manufacturing-linked sectors |
Fed Rate Cut Expected
Macro View III: Diverging signals – rising inflation vs. weakening jobs market – support a case for rate cuts.
Divergent Data Trends:
- July 2025 job openings dropped substantially, with hiring notably sluggish—job openings fell to ~7.18 million, well below expectations
- Over the past three months, job growth averaged just 35,000 per month, the weakest since the post-pandemic period
- Nonfarm payroll forecasts for August suggest a rise in unemployment to ~4.3%, the highest in nearly four years
- These labor trends are reinforcing market expectations for a Fed rate cut at the September 16–17 meeting, with many economists and futures markets pricing in a ~75% chance
- Governor Christopher Waller is calling for a September cut and expects multiple cuts over the coming 3–6 months
- Meanwhile, other officials like Bostic and Musalem remain cautious, preferring to await more data
- It can be argued that strong GDP, wage growth, job quality, and stable markets suggest the economy remains robust, and making a policy move now could undermine Fed credibility
Implications for Private Markets:
Private Credit and Portfolio Companies:
- Even with rate cuts ahead, private credit remains attractive due to its inherently high “all-in” yields.
- Lower rates will reduce borrowing costs across the board, helping portfolio companies—especially those with floating-rate debt—enhance their interest coverage ratios.
Infrastructure and Investment Incentives under the One Big Beautiful Bill Act (OBBBA):
- The OBBBA, signed July 4, 2025, extended various tax cuts (e.g., 2017 bracket structure), enhanced expensing for manufacturing investment, and provided expanded allowances for depreciation and R&D
- The law came alongside an executive order streamlining federal permitting for large-scale AI-focused data centers. With electricity demand from AI data centers forecast to explode in coming years, infrastructure players in these segments could see strong tailwinds
Government Deficits and Tariffs:
- The OBBBA is projected by the CBO to expand the deficit by approximately US$2.8 trillion through 2034
- Elevated tariffs implemented in early 2025 may provide offsetting revenue—though this is more of a balancing effect rather than a surplus strategy.
| Theme | Macro Signals | Private Markets Implications |
| Labor market | Weakening job metrics support rate cut | Lower rates improve capital servicing in private credit and portfolio companies |
| Fed outlook | Rate cut likely in September | Boost to refinancing and investment activity across private markets |
| Tax policy (OBBBA) | New incentives for CapEx, R&D, manufacturing, data centers | Favorable for infrastructure investments, especially AI-related assets |
| Deficit and tariffs | Deficits expand, but tariffs may partially cover shortfalls | Macro uncertainty may prompt investors toward yield-bearing private instruments |
Opportunity in Europe
Macro View IV: Germany’s fiscal shift, lower cost of capital, and improving private sector momentum are positive.
Germany’s Fiscal Pivot Propels Opportunity:
- Germany has significantly relaxed its “debt brake”, allowing the government to borrow extensively for defense and infrastructure spending, including a staggering €500 billion infrastructure fund and more spending on defense and green transitions.
- We see this shift as a structural pivot away from fiscal orthodoxy, unlocking public investment that can catalyze private investment and economic modernization.
- Major corporations like Siemens, SAP, Volkswagen, Deutsche Bank, and RWE are exploring a €300 billion joint investment initiative through 2028—signaling strong private sector commitment to help drive growth.
Lower Cost of Capital and Boosted Investor Confidence:
- Germany’s yield curve steepened following its fiscal policy shift, reflecting rising investor expectations for growth and investment returns.
- PE heavyweight Blackstone plans to deploy at least US$500 billion in Europe over the next decade, citing attractive valuations, lower financing costs, and favorable policy reforms—especially in Germany.
- Apollo Global Management also announced up to US$100 billion in targeted German deals, underscoring robust international confidence in the country’s investment climate.
Improving Private Sector Momentum:
- State Street’s 2025 Private Markets Outlook reports that 63% of limited partners (LPs) plan to invest in developed Europe within two years—up from 43% in 2024—highlighting growing appetite for the region.
- Germany is at the forefront of this trend, with LPs increasing allocations to PE, private credit, and infrastructure, looking for diversification and quality investments.
- We project a buoyant M&A environment in Germany for 2025—driven by falling capital costs, corporate divestments, carve-outs, and AI-energized sector convergence (e.g., energy, digital infrastructure, data centers).
- CapVest’s €10 billion acquisition of German pharma firm Stada, the largest European healthcare PE deal in 2025, demonstrating big-ticket confidence in the region.
Implications for Private Markets:
Attractive PE Landscape:
- Strong tailwinds from government spending and national reform provide fertile ground for infrastructure, industrial, tech, and healthcare deals.
- Carve-outs and strategic divestments present opportunities for transformative PE plays.
Infrastructure and Credit Draw:
- Public investments combined with favorable financing costs make infrastructure a compelling sector for long-term investors.
- Europe’s stabilized credit environment, supported by Germany’s fiscal clarity, improves debt capacity and credit fundamentals.
Global Capital Rebalancing:
- Heightened U.S. uncertainty—due to trade tensions and policy volatility—is prompting global allocators to shift toward Europe, especially Germany.
- Sovereign and institutional capital from the Middle East and Asia are increasingly seen as viable funding sources, though political sensitivities remain.
Strength in Fundraising and LP Demand:
- As capital continues flowing into European private markets, LPs are raising allocations to regionally-focused instruments, signaling durable investor confidence.
Europe’s Emerging Private Market Dynamics:
| Macro Catalyst | Private Markets Implication |
| Germany’s fiscal expansion | Unlocks infrastructure and corporate investment opportunities |
| Lower financing costs | Enhances deal returns and access for PE and infrastructure |
| Strong global capital inflows | Greater deal capacity and cross-border funding for growth segments |
| Growing LP allocations to Europe | Sustained fundraising momentum and long-term capital commitments |
| Megadeals and strategic carve-outs | Deeper M&A pipelines and sector consolidation potential |