Global uncertainty deprives investors of $1-trillion, PwC says

New York — Private equity firms are holding about $1-trillion in unsold assets, PwC said on Wednesday, capital that would have been returned to investors in a normal market environment.

High interest rates in the US, President Donald Trump’s on-again, off-again approach to tariff policy, and geopolitical uncertainty have eroded company valuations and contributed to firms holding on to portfolio firms far longer than expected.

The capital tie-up is playing a role in the slowdown in deal-making. Mergers and acquisitions (M&As), a key barometer of global economic health, have stalled this year.

“Patience is wearing a little bit thin” among limited partners (LPs), said Kevin Desai, PwC US deal platform leader.

LP firms combine some of the world’s largest and most influential investors and invest trillions of dollars in private equity firms in expectation of regular returns.

Despite entering 2025 with high hopes for an M&A rally under Trump, deal volume and value have remained largely flat year on year, with 4,535 deals totalling $567bn through to end-May, PwC said.

PwC’s May 2025 Pulse Survey found that 30% of respondents have paused or are revisiting deals due to tariff issues, fuelling investor frustration over delayed returns.

“In a typical M&A cycle, $1-trillion would have already been put back into the market,” Josh Smigel, PwC’s US private equity leader, told reporters while disclosing the firm’s 2025 midyear outlook on deal activity.

Private equity firms, which deploy LP capital into businesses across industries, have $3-trillion invested in 30,000 companies, according to PwC, with 30% held for longer than five years. That is above the traditional timeline by which funds expect to have a profit on their investments.

Earlier, these firms could easily hit their rate of return targets by using cheap debt and favourable market conditions.

A separate PwC study found 57% of executives, who poured capital into businesses that needed to be fixed, saw the investments shrink or stay the same.

Private equity firms thus need to be creative to squeeze profit from assets often bought at peak prices, said Liz Crego, PwC’s industry markets leader. That includes selling a small portion of a business that can be more valuable as a separate entity, she said.

A more uncertain market has also led to a decline in cross-border deals to 16.9% of total activity, down from 18.7% in 2021. China-related deals, in particular, face heightened scrutiny and strategic re-evaluation, PwC said.

The initial public offering (IPO) market has shown signs of life, with 31 traditional IPOs raising $11bn to end-May. While April saw a pause due to tariff shocks, activity resumed in May and June, with fintechs such as Chime, valued at $18.4bn at its Nasdaq debut, leading the charge.

Special purpose acquisition companies are also making a modest comeback, with more than 50 of those publicly traded shell companies created to raise capital through IPOs.

To unlock the $1-trillion held by private equity firms, the recession cloud over the US would have to recede, Washington would need to provide clarity over tariffs and interest rates must decline, Smigel said.

PwC expects M&A activity to improve in the coming quarters, with pressure from the LP funds looking for returns and as assets are repriced.

“Whether that is the back half of 2025 and into 2026, there are reasons to be optimistic,” Smigel said.

Reuters