September 2025 Tariff & Nowcast Update: Five Months Since April 2

Our goal in this note is to answer two simple questions.

In the process, we’ll provide an update on our Intrinsic Value (“IV”) indicator and North American private equity Nowcast. The latter is pointing to some early – albeit still weak - green shoots of recovery from our 2022 paper on the ‘fundraising recession’ / ‘distribution desert’. Our last fundraising recession lasted about 5 years (from 2009 through 2013). The timing of the current fundraising recession is not unusual: If anything, we may have to wait just a bit longer for a full recovery.

Driving these early recovery nodes are loosening monetary and fiscal conditions. These come against a backdrop of mixed macro conditions and a slow drip of tariff pain. Collectively, this renders an inherently fragile picture. As a result, while our conviction is weak, we do want to share our views on some early positive momentum. Our Nowcasts of Q2 and Q3 point to more of the same for returns and distributions, but our IV indicator is again back to near-parity (meaning private asset marks appear closer to fair value), akin to the post-election Q4 2024 rally. So long as macro conditions accommodate (and private market valuations do not suddenly rip), this suggests a better H2 2025 and especially H1 2026 for private markets.

As we reviewed in our April update, the simplest macro framework for understanding tariffs is as a source of revenue for the federal government.¹ It is a tax increase, largely on domestic producers and consumers. As such, we expect worsening macro fundamentals from tariffs, and that is indeed what we are seeing. However, muddying this picture is a simultaneous and epic loosening of financial conditions. And in the short-run, financial conditions dominate macro as the main driver of capital markets activity, equity prices, and the health of private markets. Put succinctly, loose financial conditions appear so far to be offsetting the tariff drag.

Before we dive into the data, we want to address several surprises on tariffs since April. We think these can best be understood by contextualizing the size of the tariffs vs. certain offsetting factors:

The above notwithstanding – and one way or another – a tariff tax is being paid, and it is largely falling on U.S. producers and consumers. This will be macroeconomically meaningful. But due to substitutions, inventory- and policy-driven delays, exemptions, possible foreign exporter capitulation, and offsetting future fiscal stimulus, the effects to date have been more muted than expected.

One important principle for translating macro information into capital markets activity is to realize that poor macroeconomic performance is less critical than the direction of sentiment-inducing policy. After all, the “zero interest rate policy” period was macroeconomically painful but regularly saw private equity distribution yields of ~6% per quarter, vs. 2-3% today. So, it is much more important to understand how things like macro, tariff policy, fiscal policy, and Fed policy should interact to produce a pattern of either positive or negative “impulses” to financial conditions. For example, there’s no meaningful correlation between economy-wide employment and private markets deal activity; even if the Fed is spot on that payroll growth is weakening, so long as that warrants an easing response, that could be helpful for private equity exits. Any amount of persistent easing of financing costs will help.

Even more important than this is the behavior of net asset values (NAV) relative to intrinsic values (IV). One of the basic building blocks of a healthy deal market is the opportunity for GPs to sell assets above NAVs. Unless forced, sponsors will tend to hold over-marked assets and “wait it out” until intrinsic values (IV) “catch up”. Such a period can induce both poor mark-to-market (NAV-based) time-weighted returns and low distributions as a percentage of NAV (distribution yields), which is exactly what we’ve seen since the end of the COVID boom in private markets.

Our IV indicator shows our estimate of the actual trading value of PE assets (or “Intrinsic Value”), as a fraction of the GP-indicated NAV. As this chart shows, our estimate of IV has been persistently lower than NAV since the market rout in 2022. After several false starts, including a brief period hovering at parity in Q4 2024 during the post-election rally, this metric has shown early signs of recovery. First, we are at 96% as of August 2025 levels as a percentage of our Q2 Nowcast NAV and 99% as a percentage of Q1 actual NAV. Second, while month-over-month changes can be erratic, the one-year trailing average level (what we call the “IV regime”) has been 91 cents in 2025, a meaningful improvement since the depths of the exit drought.

Sadly, we cannot declare victory yet for several reasons. First, it would be substantially more powerful to see the IV level solidly above parity, ideally for several quarters, before we’d expect distribution yields to begin to normalize. Second, optimism requires (a) banking on continued macroeconomic accommodation without a resurgence of tariff uncertainty, (b) an inflation spike large enough to force the Fed to respond, and (c) generally avoiding new “thing we didn’t see coming” macro curveballs. Indeed, our current suite of Nowcasts of Q2 and Q3 2025 suggest more of the same for now.²

Third, we continue to believe that structural adjustments and changing incentives in our industry – what we’ve called the New Exit Game – could mean that IVs will need to be even more aggressively north of NAVs to induce the same amount of exit activity in prior periods, given the fragility of fundraising for most sponsors outside of the top 50. The simplest way to understand the New Exit Game is this: if fundraising is easy, crystallize carry and sell, because you can always replenish lost AUM; if fundraising is hard, hoard assets. To a first approximation, asset sales reduce AUM and hence the management fee base; if line of sight to replenishment is not clear, that’s not an easy decision. The fundraising market is difficult despite the ‘goldilocks macro’ of an economy growing at 3.0%, an epic AI boom, high stock prices – that’s unusual and intuitively suggests something structural is happening.³ The New Exit Game is a secular headwind on distribution yields; positive cyclical improvement could still occur, but may limit the upside or ceiling level vs. past cycles.

One silver lining might be the overall macro environment, though even that is ambiguous. The post-COVID inflation fire has not yet been fully put out. As of July 2025, core inflation is tracking at 2.9% and services inflation at 3.6%. There is little chance that services inflation is impacted by tariffs. Instead, this is a sign that trend inflation remains above the Fed’s implicit target. Fed philosophy around inflation targeting has shifted from a strict 2% target to a “balance of risks” framework that introduces flexibility to preserve trend growth and employment even if inflation is over target. Currently, under this framework, inflation signals are too ambiguous to force the Fed to raise rates, and the Fed perceives that employment risks are large enough to continue easing. Unusually, a more-of-the-same, slightly hot / inflation-prone, high growth environment could be bad for liquidity in private markets if it means higher-for-longer-…for-longer. On the other hand, if the Fed perceives it has a clear mandate to ease more than markets expect to offset payroll and consumption weakness, this could be good for near-term exit liquidity so long as markets do not perceive a threat to corporate profitability and growth (i.e., stock prices do not decline). This is exactly what the ZIRP era was like: highly affordable costs of debt, a stable business environment, reasonable purchase price multiples, and enough growth.

Our team has been persistent skeptics about the future path of exits without a meaningful change in both intrinsic value and incentives. We were especially vocal in Q4 2024 last year, when the market narrative was well ahead of the data and ignored the New Exit Game’s impact on incentives. We retain a healthy amount of this skepticism as we examine the data today, but we would characterize our stance today as neutral. Much depends on how stable conditions remain throughout the rest of the year and whether we see any evidence of overheating resurgence that warrants a tougher Fed response.⁴ In our long march back to parity, IVs have had a rough journey: a cheap-money bust in 2022, a higher-for-longer rates scare in late 2023, and then the tariff shock in Q1/Q2 2025. Avoidance of another surprise would be ideal.