Trade War & Tariffs Manufacture a New Normal for Private Equity

November 2019

Download PDF Version
By BDO's Scott Hendon, Damon V. Pike and Jeff Pratt

The U.S.-China trade war has added new levels of instability to conducting business worldwide. Between nations’ clashing foreign policies, the resulting peaks and valleys of their markets, and fears of sparking or accelerating the arrival of a recession, an environment of certainty seems a distant hope.

Such uncertainty is anathema to the confidence needed for investment capital to flow freely. For private equity funds with portfolio companies that have operations in or are exposed to a China-based supply chain, the trade war has presented new challenges. It has had a particular impact on industrial companies that have relied on China as a key source of parts and materials. For those who have been relying on China as a sole supplier or trading partner, the impact has been felt far more keenly.

Much has already been said about the trillions of dollars in dry powder that private equity has on hand to put towards new investments. How are PE funds responding to such geopolitical uncertainty? Are investment strategies changing in response to the trade war? Is capital being deployed or are investors in “wait-and-see” mode?