At the Jackson Hole Economic Symposium in August 2025, U.S. Federal Reserve Chair Jerome Powell made a clear signal that the central bank expected to cut rates in the near term.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said. His speech, given nine months before he is scheduled to vacate his position, marked his last Jackson Hole Economic Symposium as Federal Reserve Chair.
He did so against a backdrop of heightened political scrutiny. In the weeks leading up to the 2025 Symposium, Powell was the subject of public criticism by President Trump who made frequent high profile remarks about the need for the Federal Reserve to move forward and cut rates quickly.
Keen to remind the audience that monetary policy is not a “preset course”, Powell reflected on the “challenging situation” being posed by both inflation and risks to employment when reiterating the FOMC’s autonomy.
“FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” he added. “We will never deviate from that approach.”
This time last year, Powell had made a similar remark that the “time has come for policy to adjust.” At that time, the Federal Reserve Interest rate had been 5.5% since 2023. This was then cut in last September’s FOMC meeting to 5%, with two further 0.25% cuts at the end of the year meaning it finished 2024 at 4.5%. This year, the latest fed fund rate announcement will impact various interest rates and will have a significant influence on investors in private assets. Furthermore, given Powell’s comments in August 2024 were followed by three successive rate cuts before the end of that year, this suggests we could again see the interest rate trend downwards over the next few months.
The End of Conventional Wisdom
Attention now turns to how the announcement could be received by private markets. It is possible that the current direction in monetary policy will give investors greater uncertainty, in what has been a challenging and unpredictable year. Many entered 2025 with the expectation of a U.S. recession and then had to navigate the tariffs that were introduced in April. These exacerbated concerns around global trade and then created confusion. Investors also had to consider the impacts of President Trump’s One Big Beautiful Bill Act (OBBBA), which promises numerous reforms and will take time to play out.
What is clear is that any fears around a U.S. recession have not yet materialized and that the long-term economic impacts of both tariffs and the OBBBA are still unfolding and have not yet settled. In this instance, it is arguable that OBBBA introduced a recession mitigating component. The reversion to prior tax rates mitigated the expectation of reduced consumer spending. Against this backdrop, the Federal Reserve faces a challenging task of tempering inflation while not exacerbating employment market issues, especially as markets react to AI and its potential impact on employment rates. Investors can take solace from greater certainty, and the lack of recession. But in 2025, conventional wisdom is having trouble being just that - conventional.
More specifically, within private markets, it is expected that rate cuts between now and the end of the year could be positive. There is currently a log jam of excess with private equity exits having dwindled since Covid. As interest rates ease, the pent-up demand for exits or liquidity is expected to drive significant deal activity through the end of 2025 and into 2026. Concurrently we are seeing an increasing number of private debt and equity managers launching “retail” investment vehicles which provide the ability to invest in private assets on a daily/weekly/monthly basis and provide limited opportunity for monthly or quarterly distributions. As more capital is raised by these evergreen vehicles, the demand for private investment products and underlying investments correspondingly increases.
Private markets’ retailization is not a new trend, but it has been accelerated in the past year. At the beginning of August, President Trump signed an executive order with the aim of expanding 401(k) access to certain alternative asset classes including private equity. The order directed the Department of Labor, among others, to review its guidance regarding plan fiduciaries’ duties under ERISA when offering asset allocation funds that invest in alternative assets. The DOL was set 180 days to carry out this work, until a further re-examination of the issue by the secretary of labor.
Deal or No Deal
The decrease in interest rates combined with the increasing demand for private investment provides a perfect storm for increased deal activity. Some actions of the SEC, such as the issuance of rule 2a-5 in 2020, provided a welcome update to regulations covering the determination of fair value. Other regulatory activity, such as the issuance of the private funds rule in 2023, has subsequently been vacated by a federal court. Yet, given the increasing number of investors in private funds, including investors in funds with greater liquidity, the need for transparency in transaction pricing and rigor in valuation estimates is ever increasing.
As more investment capital is directed to private markets, and as new investors are exposed to the nuances of private investments, private fund managers must enhance their approach to reporting increasingly complex transactions and complying with an expanded regulatory environment.
This Is Not An Exit
Exiting investments directly through an initial public offering, or to a corporate or financial sponsor may prove difficult in the current environment given the macro uncertainty driven by the election cycle, global conflicts, and continued inflationary pressure. Lower interest rates provide the opportunity for private fund managers to offer their investors liquidity through recapitalization transactions. These allow underlying investee companies with strong economic performance and cash flows to refinance existing debt and increase their debt load, with the proceeds then distributed to investors. To ensure the debt load placed on underlying portfolio companies is not overly burdensome, it is sound practice to obtain a solvency opinion from an experienced independent provider of solvency and transaction opinions.
As the hold period for underlying investments is extended, for those investments where an exit or recapitalization may not be appropriate, a fund manager may transfer aged investments to a new or continuation fund. The SEC’s private funds rule would have required investors to be provided with a fairness opinion for such transactions. Even though the rule has now been vacated, many reputable managers are likely to obtain an independent fairness opinion to help ensure that investors are treated fairly, both in the prior fund and in the continuation fund.
The Expansion of Retail Funds
Additionally, with the advent of new retail funds, many managers will make warehouse investments or transfer existing investments from existing portfolios to seed the new evergreen vehicles. In order to provide investor transparency, an independent fairness opinion can assure the general partners or investors of the value of the investments. The expansion of retail funds offering private investments with greater liquidity also places significant demands on the rigor applied to valuing private investments on a more frequent and timelier basis. For most private funds, the investment manager or general partner reports fair value of underlying investments on a quarterly basis in arrears – by as much as 90 to 120 days or more for some quarters. This phenomenon creates a paradigm where many believe that private investments cannot be valued more frequently than quarterly or possibly monthly.
The answer to this problem lies in the accounting guidance provided by FASB in 2009 for valuing fund interests and in the basic provisions of FASB Accounting Standards Codification Topic 820, Fair Value Measurements. The value of a private investment is generally driven by three factors: market conditions, performance/risk and idiosyncratic impacts. Further, fair value is based on information that is known or knowable as of a measurement date. Therefore, a rigorous approach to valuing private investments includes a new paradigm where fair value on a daily or monthly basis is determined by taking into account the following: the last reported fair value, adjusted by a market adjustment factor, adjusted for cashflows if any, incorporating updated performance metrics and manager assessments of value and idiosyncratic or judgmental factors, to arrive at the current dates fair value. This valuation paradigm requires the application of informed judgment and a consistent process to estimate fair value on a frequent and timely basis.
Final Remarks
A range of factors – interest rate movements, global geopolitical conditions, inflationary pressure, SEC regulation, investor demand for new products with the ability to enter and exit more frequently and investor pressure to provide liquidity – are all converging to give rise to the need for transparent transactions and the need for robust valuations. Independent opinion and valuation support will help provide investors with the transparency needed as deal and investment activity accelerates through the end of 2025 and into 2026.
