NEW YORK, June 11, 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.
