New York, New York--(Newsfile Corp. - June 17, 2025) - In a rapidly evolving economic landscape, tariffs are significantly influencing investment decisions and prompting institutional investors to reassess priorities as they navigate geopolitical tensions, inflationary pressures and the growing impact of artificial intelligence (AI), according to new findings in KPMG's latest Private Markets Pulse: Reshaping investment strategies amid economic uncertainty.
KPMG US surveyed more than 300 institutional investors across private equity (PE), asset management, venture capital (VC) and various industries and sectors in January-February 2025 and again in April 2025, to capture changes in investor sentiment around economic growth and deal market outlook, including factors influencing investment decisions both before and after the announcement of new tariffs and the resulting effects.
"Tariffs – both the downstream impacts and mitigation of them – are challenging institutional investors to rethink their investment strategies and risk appetite," said Tarek Ebeid, KPMG US Private Leader and Partner in Charge - Northern California Audit Practice, KPMG US. "While they maintain an optimistic view of long-term growth, in the near-term, their focus has shifted to domestic companies in industries experiencing less uncertainty due to the current market environment."
Investors view tariffs as both a near-term challenge and a driver of strategic shifts in investment priorities.
Investor views are mixed regarding tariffs' impact on economic growth in the near-term, while longer term (beyond 18 months), there is perceived optimism that the tariffs will be positive for the US economy. With 61% of institutional investors acknowledging the high impact of tariffs on investment decisions, there is a notable shift towards domestic companies and sectors less impacted by tariffs, particularly in technology and cybersecurity.
Fifty-four percent of investors are prioritizing domestic companies, 48% are focusing on sectors best positioned for economic growth under current economic conditions and 41% are prioritizing companies with strong financials, while 39% show favorability toward less import-reliant sectors. Additionally, investors with higher capital levels are increasingly diversifying their portfolios to mitigate tariff impacts, with 52% indicating increased investment in private companies in the near-term.
Investors cite financial services, banking, insurance and fintech (51%), blockchain and cryptocurrency (46%), cybersecurity (43%), real estate and proptech (43%) and technology, software and AI (42%) as industries best positioned to attract investments in the next 18 months due to the continuation of technological advancements.
Investors are holding out hope for the initial public offering (IPO) window to open as capital deployment plans show a slight uptick.
Despite reduced optimism about near-term economic conditions, investor confidence in IPO activity remains strong, with 68% expecting an increase in activity in the next 18 months. Investors in financial services and banking are particularly optimistic, with 80% anticipating heightened IPO activity. Similarly, a vast majority of investors (91%) remain confident that the transaction market will increase in the next 18 months. Growth equity investments and mergers and acquisitions (M&A) are seen as the most viable exit pathways outside of an IPO, consistent with investor consensus earlier this year.
A growing number of investors are planning to deploy substantial capital, with 43% intending to invest over $1 billion in the next 18 months. When surveyed in April, more asset managers and private equity investors reported plans to invest over $5 billion in the same timeframe, compared to their responses in January and February.
Investor confidence wanes in the near-term, with interest rate cuts and geopolitical tensions expected to shape economic outlook.
A 12-point decline in optimism about economic growth in the near-term (in the next 18 months) from January-February to April, is tempered by four in ten investors believing economic uncertainty is limited to the short-term (six months to a year). Just one in four believe it will last beyond two years.
Nearly half of investors (47%) anticipate a recession in the next 18 months, with private equity investors more likely to hold this view compared to their venture capital and asset management counterparts. Additionally, 72% believe there will be two or more interest rate cuts by the Federal Reserve this year. This partially aligns with the latest KPMG Economic Compass, in which Diane Swonk, KPMG Chief Economist, forecasts persistently high levels of uncertainty and uneven deregulation over the next two years, alongside two rate cuts by the Fed prior to the end of the year, starting in October.
Over the next 18 months, investors anticipate that several factors will significantly influence growth. Geopolitical issues top the list at 45%, followed closely by inflation (42%), technological advances (38%) and changes in tax policy (37%). Notably, investors in financial services/banking, accounting/tax/auditing, and blockchain/crypto place greater emphasis on tax policy changes compared to those in other sectors.
Key findings by investor class:
Amidst declining economic optimism and transaction market confidence, asset management firms are adopting a cautious approach to investments, with a strategic emphasis on domestic investments and resilient supply chains.
"Compounding economic volatility is driving a mindset shift among asset managers, influenced by the dynamics of a difficult-to-forecast interest rate future, market turbulence, and a complex geopolitical environment. Rather than retreat, firms are recalibrating with optimism and intent. As global capital shifts, domestic players are finding room to move, innovate, and turn uncertainty into long-term advantage." - Yesenia Scheker-Izquierdo, National Sector Leader for Asset Management
- Fifty-five percent of asset managers are increasing their focus on investments in US-based companies, while only 22% are expanding exposure outside the US. At the same time, 32% are focusing on companies with resilient supply chains, emphasizing operational strength in their portfolios.
- Roughly a quarter (24%) of asset managers are pausing new investments in private companies, indicating a more measured approach to deploying capital.
- While confidence in the transaction markets over the next 18 months remains strong, that confidence also saw a slight decline, with expectations of growth falling from 95% in February 2025 to 90% in the latest survey.
- Despite economic concerns, 36% of asset managers believe there will not be a recession in the US within the next 18 months.
- Asset managers are expecting multiple interest rate cuts this year, with 72% expecting two or more rate cuts in 2025, with similar expectations shared by VC (70%) and PE (74%) counterparts.
- Over the next 18 months, capital deployment plans among asset managers vary: 57% expect to deploy less than $1 billion, 20% plan to deploy between $1 billion and $5 billion, and 23% anticipate deploying more than $5 billion.
PE investors are closely examining the American consumer and looking for signs that they are being impacted negatively by tariffs and economic volatility, with these insights feeding into their investment decisions.
"Our survey confirmed that PE investors, through their holdings of consumer and retail companies, seem to be very much in touch with current consumer sentiment, and are using that sentiment as a gauge when evaluating investment opportunities." - Glenn Mincey, US Sector Leader, Private Equity
- PE investors (32%) are more likely to be concerned about supply chain disruptions when evaluating investment opportunities as compared to all other institutional investors (21%).
- PE investors (24%) are more likely to be concerned about shifts in consumer behaviors when evaluating investment opportunities as compared to all other institutional investors (15%).
- Fifty-seven percent of PE investors expect a recession in the next 18 months, versus 47% for all institutional investors.
- Thirty-six percent of PE investors see falling consumer confidence as an indicator of recession, versus only 26% of all institutional investors.
While optimism for near-term economic growth in the next 18 months has tempered among VC investors since early 2025, VC investors have the highest optimism for economic growth when looking ahead beyond 18 months.
"While tariffs, interest rates and global jitters are causing VC investors to pull back in the near term, there's more to it than meets the eye. Look past the fog, and VCs are the most bullish in the room. In fact, venture capital is playing the long game—and they've got the track record to back it up." - Francois Chadwick, Global & National Lead Partner, Emerging Giants, Private Enterprise
"Even as headwinds rise—tariffs, inflation, the specter of recession—VCs are adjusting, not retreating. They're sharpening their focus, tightening their grip, and staying in the game. They understand how to navigate compound volatility, and that's how they've been such huge contributors to the global economy." - Conor Moore, Global Head of KPMG Private Enterprise, KPMG International, and Head of KPMG Private Enterprise, KPMG US
- Eighty-six percent of VC investors said they were optimistic for near-term economic growth in the next 18 months in April 2025, compared to 93% who were optimistic in January.
- However, 95% of VC investors said they were optimistic for economic growth when looking ahead beyond 18 months – the highest among all institutional investors.
- VC investors remain confident, 92% in April vs. 90% earlier this year, that the transactions market will increase activity in the next 18 months. Likewise, 66% of VC investors are confident IPO activity will increase in the near term.
- Fifty-six percent of VC investors said they are increasingly focusing their investments on US-based companies with less import-dependency in light of current global economic and trade conditions.
About the KPMG US Survey - KPMG Private Markets Pulse: Reshaping investment strategies amid economic uncertainty
The KPMG study surveyed 300 institutional investors in the US who are decision makers in their company's investment in private companies and work at companies with $500M+ in total assets under management across various verticals, including asset management (46%), venture capital (29%), and private equity (25%).
The survey was fielded April 3 – 23, 2025 to explore changes in sentiment and optimism around the US growth outlook amid changing US economic policy and the introduction of actual and proposed tariffs, following an initial survey that was fielded January 21 – February 7, 2025. Topics explored include near and medium-term growth outlook, deal outlook and the impact of tariffs on investment decisions and strategy.
About KPMG LLP
KPMG LLP is the U.S. firm of the KPMG global organization of independent professional services firms providing audit, tax and advisory services. The KPMG global organization operates in 142 countries and territories and has more than 275,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
KPMG is widely recognized for being a great place to work and build a career. Our people share a sense of purpose in the work we do, and a strong commitment to increasing access to education and opportunity, advancing mental health, and supporting community vitality. Learn more at www.kpmg.com/us.
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