This month’s geopolitical developments – including shifting tariffs, conflict in the Middle East and concerns around potential AI market disruption – have added uncertainty and volatility in these global financial markets. Institutional investors are navigating these challenges and assessing their impact on current and prospective investments.
Institutional Investor Responses
We have received numerous inquiries from institutional investor clients regarding the implications of these geopolitical developments on their investment portfolios as well as on live deals, including primaries, coinvests, secondaries and direct investments. While there is no single answer to these questions, several common themes have emerged:
- Refreshing Investment Committee Analyses: Many clients are revisiting their investment committee analyses for deals in process, particularly for assets or portfolios that may be disproportionately affected by recent events.
- Selective Deal Activity: Some clients have decided not to pursue certain transactions due to heightened risk or anticipated lower returns, while others are moving forward at a slower pace to allow for more thorough diligence. It is also worth noting that if another investor in a deal elects to pull back, it can have ripple effects.
- Delayed Sales and Continuation Fund Launches: We are also seeing some sponsors delay sales processes and/or the launch of continuation fund transactions as they evaluate ongoing market turmoil amid concerns about volatility and inflation.
Possible Implications of Recent Public Market Declines
The declines across public markets in recent weeks may have broader implications over the months ahead. Looking ahead, three key areas to monitor include:
- The decline in public markets may impact institutional investors’ allocations to alternatives. In particular, the drop in public portfolio valuations may influence the pacing, or even the quanta, of some investors’ deployment to alternatives strategies (or even specific asset classes). As noted above, we are seeing some investors slow their fund commitments and/or reevaluate other deals as they consider the implications of geopolitical developments.
- As private market valuations tend to lag the public markets, the denominator effect may also trigger a need for some institutional investors to rebalance their portfolios, potentially triggering secondary sales later this year. This may be particularly relevant for investors whose year-end is March 31.
- Another area of interest is the possibility of redemptions from retail alternative products and whether this will impact deals.
