Authored by Nick Pollard, Managing Director, CAIA APAC, and Joey Chan, CFA, FCCA, CPA, Director, External Relations, CAIA APAC
The penguins of the Heard and MacDonald Islands seem relatively chilled about the imposition of tariffs on their international trade. The rest of the world, however, with a nod to Elizabeth Kubler-Ross, has moved through the stages of denial and anger, and is bargaining like crazy to reverse or lessen the pain – it remains to be seen if depression and acceptance lie ahead.
While protectionism isn’t new, the scale and rhetoric of recent U.S. measures, especially since January 2025, profoundly impact international trade, supply chains, and investment strategies. This shift creates substantial risks but also unique opportunities within Asia’s diverse private markets (PE, VC, real estate, infrastructure, credit).
In this issue of Chronicles, we’ll examine what this means for the alternatives world and whether there’s a silver lining hiding within the clouds.
Tariffs’ Impact on Global Private Markets and Alternatives
The immediate market reaction to the 2025 tariff announcements was sharp volatility, raising concerns across the private markets ecosystem, particularly regarding exits and overall deal flow, as the tariff-induced market swings threaten the nascent recovery in private equity exits. The Wall Street Journal reported that the industry sits on a significant backlog of portfolio companies (over 12,000 in the U.S., with many held long-term). A large portion (~60% of long-held assets) have significant import exposure, making them vulnerable to tariff volatility. This uncertainty complicates valuations and dampens buyer appetite, particularly for IPOs and sales to strategic buyers with cross-border operations. While outright fire sales are unlikely, the challenging exit environment is expected to:
- Slow Near-Term Exit Activity: GPs may pause sales processes, waiting for market conditions and policy clarity to improve. Arctos Insights warned this could push M&A and IPO activity to lows resembling Q2 2020.
- Increase the Use of Continuation Funds: GPs may increasingly turn to continuation vehicles to hold assets longer, provide partial liquidity to LPs, and wait for better exit conditions, rather than selling into a depressed market.
- Exacerbate LP Pressure: Already facing low distribution levels (“DPI”), LPs may experience further delays in capital returns, potentially worsening overallocation issues and straining fundraising efforts for new funds. Arta Tabaee of Clearlake Capital Group noted that new investments were outpacing exits 3-to-1, an unsustainable ratio.
BCA Research echoes these concerns, viewing trade tensions and recession risks as an inflection point, particularly for Private Equity. Their April outlook highlights:
- PE Under Pressure: Buyout strategies face headwinds from low distributions and heightened LP-GP tensions.
- VC Compression: Valuations have already compressed, and capital flows are constrained, though BCA maintains an overweight stance.
- Credit as Ballast: Direct Lending and Secondaries are seen as stabilizing forces. Distressed opportunities are expected to build, potentially without the central bank rescue seen in 2020.
- Commercial Real Estate: Distress is building in the Multifamily sector, while the Industrial sector faces declines due to the growth outlook.
- Hedge Funds: Favors Global Macro strategies in a “trader’s market,” downgrading Event Driven.
BCA’s bottom line emphasizes that while tariffs may trigger a recession, the economy was already vulnerable, with PE as the most exposed.
The Asia picture
For Asia, the tariffs act as both a significant disruptor and a catalyst for realignment, creating specific regional dynamics.
- Supply Chain Reconfiguration: Tariffs targeting China directly, and indirectly via Southeast Asian hubs perceived as circumvention routes, accelerate the diversification of manufacturing. Companies are actively seeking alternative production bases to mitigate costs and geopolitical risk.
- Beneficiaries: India, Vietnam, Indonesia, Thailand, and the Philippines stand to gain from redirected foreign direct investment (FDI) and increased sourcing orders. PitchBook notes India’s concerted effort to position itself as a reliable alternative, attracting significant interest. Indonesia and the Philippines benefit from stronger domestic demand drivers.
- Pressure on Existing Models: The “Factory Asia” model, particularly in Southeast Asian countries, is heavily reliant on exporting tariff-targeted goods to the U.S. and faces pressure. Investments predicated on this model may see their rationale undermined, potentially leading to impairments and extended holding periods.
- Private Equity Dynamics:
- Opportunities: Growth capital for companies in beneficiary nations scaling up, consolidation plays, investment in supply chain services, and operational improvement mandates.
- Challenges: Exit environment weakening further due to policy uncertainty impacting buyer appetite and valuations, and potential impairments in portfolios exposed to disrupted trade flows. Secondary market activity is expected to remain buoyant as LPs and GPs seek liquidity solutions.
- Private Credit Expansion: As traditional bank lending tightens amidst uncertainty and SMEs face pressure, private credit opportunities are expected to grow across APAC. This includes direct lending for liquidity needs, special situations (recapitalizations, distressed debt), and financing for regional expansion, particularly in India and Indonesia. However, Bank of Singapore notes that managers with U.S. concentration will face scrutiny, and increased provisions are expected.
- Real Estate Shifts: Demand surges for industrial/logistics facilities in beneficiary countries. Conversely, existing assets tied to disrupted trade routes may face pressure. Infrastructure-adjacent real estate (worker housing, commercial) also sees demand in growing hubs.
- Infrastructure Investment: Significant investment is needed in transportation, energy (including renewables), and digital infrastructure in nations absorbing relocated manufacturing, creating opportunities for infrastructure funds and PPPs.
- Venture Capital & Tech: Focus shifts towards supply chain tech, manufacturing automation (Industry 4.0), FinTech for cross-border trade, and supporting local innovation ecosystems in emerging hubs.
- Hedge Fund Performance Divergence: Volatility favors certain strategies. Bank of Singapore expects Relative Value (Convertible Arbitrage, Credit RV, Quant Equity Market Neutral) and Macro Discretionary funds to outperform due to lower net exposures and ability to capitalize on dislocations. Equity Long/Short and trend-following CTAs faced challenges during the initial tariff shocks. Strong manager selection becomes even more critical.
- Regional Integration: Tariffs are pushing Asian economies towards greater intra-regional trade and cooperation to reduce reliance on volatile global flows. This creates long-term opportunities in cross-border logistics, digital trade enablement, and businesses serving integrated regional supply chains.
Navigating the New Terrain
While proponents argue that tariffs are necessary to correct trade imbalances, revive domestic industry, and counter geopolitical rivals, opponents warn of inflation, economic disruption, and the superiority of targeted industrial policies.
For CAIA Members investing in or allocating to Asian alternatives, the key takeaway is that the landscape is fundamentally changing. The acceleration of supply chain diversification away from China creates tangible opportunities in private equity, credit, real estate, and infrastructure across beneficiary nations like India, Vietnam, Indonesia, and others. However, this shift is fraught with risks related to policy volatility, execution challenges in nascent hubs, potential inflationary pressures, and heightened geopolitical tensions.
Valuation practices are under intense scrutiny. The principles of fair value remain constant, but their application requires heightened judgment, rigorous analysis of company-specific tariff exposure, careful calibration of inputs, robust governance, and transparent documentation, as outlined by Houlihan Lokey.
Moving forward, investors must prioritize portfolio resilience. This involves:
- Enhanced Due Diligence: Deeply understanding the tariff exposure and mitigation strategies of potential and existing portfolio companies.
- Scenario Planning: Modelling various tariff outcomes (escalation, negotiation, exemptions) and their impact on investments.
- Geographic and Sector Diversification: Balancing exposure across different Asian markets and sectors to mitigate concentration risk.
- Focus on Domestic Demand & Regional Integration: Favouring investments less reliant on volatile global trade flows and more aligned with growing domestic consumption or strengthening intra-Asian trade.
- Active Management: Closely monitoring portfolio companies and supporting them in navigating supply chain adjustments and cost pressures.
- Liquidity Management: Anticipating potentially longer holding periods and utilizing tools like secondaries or continuation funds where appropriate.
The era of predictable, ever-liberalizing global trade appears to be over, replaced by a more fragmented and politically charged environment. Success in Asian alternative investments will require adaptability, deep regional expertise, and a disciplined approach to risk management and valuation in the face of ongoing uncertainty.
There is no do-nothing scenario, even for those penguins….
Resources
Tariff Upheaval Threatens Private Equity’s Exit Recovery Hopes – Wall Street Journal
PMA Quarterly Outlook: Private Equity’s Tipping Point – BCA Research
Monthly Investment Guide: Tariffs, Tensions, and Turbulence – Bank of Singapore
PitchBook Analyst Note: Tariffs and the Rewiring of APAC Private Markets
Implications of Tariff-Driven Market Volatility on Fair Value Assessments – Houlihan Lokey
Developing Geopolitical Frameworks in Periods of Uncertainty – CAIA Association
