Tariffs, Liquidity and the New Private Equity Playbook
Eight Moves Private Equity Firms Should Make Now to Manage Tariff Risk
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April 23, 2025
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As tariff threats re-emerge under a more protectionist U.S. trade policy, private equity (“PE”) firms, already facing a slowdown in exits and investor distributions, are under renewed pressure to safeguard margin, manage volatility and preserve enterprise value across their portfolios. This is no longer just a supply chain issue — it’s also a liquidity one.
Rising costs, sudden trade shifts and geopolitical ripple effects are creating real consequences for cash flow, pricing models and financial covenants. In this environment, PE firms are being called on to do more than react. They need to equip management teams with tools to assess exposure, forecast impact and communicate clearly with boards, lenders and stakeholders.
Navigating this rapidly evolving landscape requires a proactive strategy to assess customs programs and partnerships, optimize supply chains, manage stakeholders and advocate for vital business interests. Private equity firms need a clear framework to protect EBITDA, preserve liquidity and manage operational risk across global portfolios. But where do you start? What steps can be taken to help private equity investors pressure-test their plans and build a more proactive response to tariff disruption?
Eight-Step Tariff-Ready Framework
- Know your exposure: Identify the pinch points across each portfolio company’s entire multi-tier supply chain, evaluate risks and potential business impact, and consider political vulnerabilities.
- Understand the scenarios: Explore the economic, commercial and operational impact of the administration’s likely next steps. What are the potential retaliatory responses? Where can private equity sponsors influence outcomes? Where can leverage be created?
- Stress-test liquidity and covenants: Develop a business plan that incorporates various tariff scenarios, their likelihood and the potential impact on financial covenants.
- Assess your options: Evaluate your existing supply chain network across the full range of tariff options and include strategies to address these challenges effectively.
- Build your strategy: Sweeping claims and certain studies may not resonate with the administration’s goals. Instead, lead with specifics about the impact on U.S. employees, consumers and critical supply chains.
- Prepare for escalation: Beyond near-term tariff mitigation, businesses must prepare for broader threats, including rapid technological shifts, global logistics bottlenecks, skilled labor shortages and geopolitical instability. Playing the long game requires investments in innovation, regionalized production and digital supply chain agility to strengthen competitive positioning beyond 2025.
- Account for all your stakeholders: Clear and consistent messaging is critical in periods of disruption. Investors, employees, customers, local officials and media will want to see a company that’s managing uncertainty and change effectively, rather than seeming overwhelmed by it. Portfolio companies also need to be prepared to engage directly with the U.S. administration and a president who values hearing from CEOs. Sponsors can support this effort by helping shape aligned, credible messages across the portfolio.
- Maintain authenticity: As portfolio companies face pressure over policies — what to do and what not to do — it’s more important than ever to remain anchored to core mission and values.
From Framework to Execution
For private equity sponsors and portfolio executives, strategy is only as valuable as its execution. Once you’ve assessed exposure and mapped out high-level risks, the next step is to activate the right mitigation levers tailored to each company’s footprint, financial profile and supply chain complexity. We’ve seen firsthand how portfolio companies can use customs data, scenario planning and stakeholder alignment to move quickly from exposure assessment to action.
Conclusion
Uncertainty isn’t new, but it is taking new forms. If we look beyond the near-term volatility, underlying trends indicate companies should be prepared for sustained challenges stemming from heightened uncertainty, supply chain disruption, government intervention and geopolitical tension. For private equity firms, the challenge isn’t just predicting what’s next; it’s being prepared to adapt. These are the very conversations we’re having with clients across the market. By taking a proactive, structured approach to risk and equipping portfolio companies with the tools to respond, sponsors can help navigate whatever comes next with greater confidence and resilience.
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Published
April 23, 2025
Key Contacts
Senior Managing Director, Head of Americas Public Affairs
EMEA Chairman
Senior Managing Director, Head of Asia & Caribbean