Opportunity in volatility: private equity rides the waves

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Fidelity Investments’ private equity experts say public market volatility and tariff uncertainty are creating timely opportunities in secondaries and long-term private equity exposure

Heading into 2025, private equity deal-buying activity was expected to increase. The economic environment was set to improve, financing markets were supportive, and government policy was favourable. Confidence was also boosted because private equity firms had raised significant funds in the past few years that had not been deployed, improving buying capacity. The market also expected sellers to come to market in 2025 and increase the volume of exits. Due to the sluggish deal-making environment that had started in late 2022 and the delayed exit activity in earlier investments, private equity funds felt pressure to improve liquidity from their older funds. However, the optimism and confidence were misplaced as tariffs rocked the world and shook the markets. Since the first quarter of 2025, the buyout markets have been adjusting to a new, uncertain environment due not just to tariffs and volatile equity markets but government policy and spending as well. The uncertain environment put a hold on new deal activity and has been reversing the upward trend in volumes seen in the first quarter; this could lengthen hold periods, slowing down liquidity coming back from legacy private equity investments. Despite these potentially unfavourable outcomes, there are reasons to be positive.

Fidelity Canada Institutional serves a diversified client base across all major asset classes, focusing on corporate and public defined benefit and defined contribution pension plans, endowments and foundations, insurance companies, MEPPs, and financial institutions. Built on over 50 years of serving the needs of institutional investors worldwide, we offer active and risk-controlled disciplines, including Canadian, US, international, and global equity, fixed-income, asset allocation, real estate, and custom solutions. 

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“The private equity model has historically helped the asset class outperform public equities”

Michael Bailey, Fidelity Investments

“Periods like this don’t stall private equity,” says Michael Bailey, head of private equity multi-strategy at Fidelity Investments in Boston. “The buyout markets are adjusting to a new, more unpredictable backdrop, but that creates opportunity. You’re seeing portfolio companies navigate through the disruption and lean into situations like carve-outs or take-privates.” Private equity firms are looking for opportunities in this market, including investments that may be favourable during times of volatility. Bailey expects new investment activity to be

steady in the small buyout and growth equity segments, where individual company attributes tend to outweigh macro factors. Private equity’s investment model stands apart from public markets, especially in the face of macroeconomic uncertainty. Rising tariffs and unstable equity markets have complicated matters. Yet, these same pressures have helped spotlight the strengths of the asset class. Unlike public equities, which are subject to near-constant price discovery and market sentiment, private equity can take a longer-term view. Managers aren’t forced to transact in real time. They can hold through uncertainty, work with management to improve fundamentals, and exit when conditions are more favourable. “The private equity model has historically helped the asset class outperform public equities,” says Bailey, who previously managed private equity for Massachusetts Pension Reserves Investment Management Board and now leads Fidelity Investments’ multi-strategy private equity platform alongside Melissa Mendenhall, portfolio manager. Mendenhall, before joining Fidelity, led private equity and private credit research at NEPC, advising pensions, foundations, and private wealth clients. Bailey and Mendenhall bring extensive experience and multifaceted perspectives to a private market environment where liquidity considerations and thoughtful diversification are important aspects of investment decision-making.

Private capital is, by its nature, illiquid. Investors typically commit to a fund with the understanding that capital will be locked up for years, with limited ability to exit before distributions begin. Staying the course with illiquid private equity allows for long-term wealth creation and reduced portfolio volatility. To provide more flexibility, two liquidity-focused strategies have gained traction: LP-led secondaries and GP-led secondaries. In secondary private equity, Bailey and Mendenhall see many of the risks as opportunities for buyers. As institutional investors like pension funds and university endowments are under growing pressure to raise liquidity to rebalance portfolios away from illiquid assets, or to fund other financial needs, secondaries create benefits for providers of liquidity. Secondary transaction volumes hit a record $160 billion in 2024. Given the amount of capital available in secondary funds, Bailey and Mendenhall anticipate high-activity levels to continue in 2025 given the dynamic environment we’re in today; the space is no longer niche. Secondaries have become essential in a market where exits are slow and portfolios are aging, especially for LPs that may wish to rebalance a portfolio or liquidate altogether. These transactions help give investors a way to take advantage of shorter timelines and LPs a means to generate liquidity. “Secondaries are helping investors solve for both diversification and liquidity,” Mendenhall says. “Especially in today’s environment, they can provide well-priced exposure to portfolios that are already partially built, with shorter duration to exit and better visibility into the underlying assets.” This is especially true for GP-led secondaries, where managers retain ownership of high-performing companies through continuation vehicles. In this type of secondary transaction, a GP sells a portfolio company or assets to a new fund with new LPs to continue reaping the benefits of a profitable investment. The existing LPs in GP-led secondaries benefit from the liquidity management, and both investors and the company gain from the value created during the period the investment is held by the new LPs. Once viewed as a fallback strategy, these deals are now a core part of how GPs manage portfolios and how investors can gain access to mature, de-risked assets. “What’s changed is the intent,” Mendenhall explains. “It’s no longer just about extending timelines. It’s about doubling down on companies that still have room to grow but need a bit more time and capital. That can be a very attractive entry point.” Bailey adds that the trade-off between secondaries and primaries is also strategic. “Secondaries tend to deliver earlier performance and shorter duration,” he says. “Primaries, on the other hand, offer a longer compounding runway and potentially higher upside.”

“By investing in private equity, you’re not just diversifying what you own,” says Mendenhall. “You’re helping to diversify how value is created in your portfolio. That distinction matters, especially in markets like this.” Funds raise money every three to five years, and private equity fund investing comes with significant challenges, including portfolio management, assessing manager performance, and managing risk. Therefore, to effectively gain access to high-performing private equity funds, institutional investors need an asset manager with an investment process designed to add value through careful manager selection and portfolio construction.

“By assembling a portfolio across dozens of funds and hundreds of underlying companies, it can reduce idiosyncratic risk in a way that’s very hard for [small institutional investors] to do on their own”

Top-down portfolio construction targets diversification across investment type (primary/secondary/co-investments), asset class (small buyout/large buyout/growth equity), and vintage years. Bottom-up manager selection seeks to add value by investing capital with fund managers expected to outperform their peers in each target asset class. Combining the two helps build a risk-controlled portfolio targeting several funds that align with diversification targets by investment type, asset class, and vintage year.

Liquidity as a lens: secondaries and GP stakes

Published October 6, 2025

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Building efficient diversification at scale

Melissa Mendenhall, Fidelity investments

For institutional use only. Information provided in, and presentation of, this document are for informational and educational purposes only and are not a recommendation to take any particular action, or any action at all, nor an offer or solicitation to buy or sell any securities or services presented. It is not investment advice. Before making any investment decisions, you should consult with your own professional advisers and take into account all of the particular facts and circumstances of your individual situation. Fidelity and its representatives may have a conflict of interest in the products or services mentioned in these materials because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and/or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services. This document is created by Fidelity Investments Canada ULC (“FIC”) and is not meant to endorse or sponsor any specific Fidelity product or service. "Fidelity Investments" and/or “Fidelity” refers to: i) FMR LLC, a US company, and its subsidiaries, such as Fidelity Management & Research Company (FMR Co.) and FIAM LLC (“FIAM”); or ii) Fidelity Investments Canada ULC (“FIC”) and its affiliates, as applicable. These materials may contain statements that are “forward-looking statements,” which are based on certain assumptions of future events. Forward-looking statements are based on information available on the date hereof, and Fidelity Investments Canada ULC (“FIC”) does not assume any duty to update any forward-looking statement. Actual events may differ from those assumed by FIC when developing forward-looking statements. There can be no assurance that forward-looking statements, including any projected returns, will materialize or that actual market conditions and/or performance results will not be materially different or worse than those presented. Information provided in this document is for informational and educational purposes only. To the extent any investment information in this material is deemed to be a recommendation, it is not meant to be impartial investment advice or advice in a fiduciary capacity and is not intended to be used as a primary basis for you or your client’s investment decisions. Fidelity and its representatives may have a conflict of interest in the products or services mentioned in this material because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and/or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services. Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Views expressed are as of 7/10/25, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information. • Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice, and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision. • In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) • Fixed income securities carry inflation, credit, and default risks for both issuers and counterparties. Investing involves risk, including risk of loss. Past performance is no guarantee of future results. An investment may be risky and may not be suitable for an investor's goals, objectives and risk tolerance. Investors should be aware that an investment's value may be volatile and any investment involves the risk that you may lose money. Performance results for individual accounts will differ from performance results for composites and representative accounts due to factors such as portfolio size, account objectives and restrictions, and factors specific to a particular investment structure.

(small buyout/large buyout/growth equity), and vintage years. Bottom-up manager selection seeks to add value by investing capital with fund managers expected to outperform their peers in each target asset class. Combining the two helps build a risk-controlled portfolio targeting several funds that align with diversification targets by investment type, asset class, and vintage year. It has been challenging in the past for investors to access and diversify such exposure given high minimums and other barriers, so the emergence of multi-manager solutions and registered vehicles may open the door to wider adoption. “The way you access the asset class is very different from public markets,” says Mendenhall. “It takes scale, expertise, and relationships.”

“Each of those elements plays a role. Primary funds give you that long runway of potential return, secondaries offer earlier performance and liquidity, and co-investments allow you to be more targeted”

Michael Bailey, Fidelity INVESTMENTS

Private equity funds often own relatively concentrated portfolios of private companies, which can increase the risk that underperformance of a single company would significantly impact the fund’s overall returns. Building a well-diversified portfolio using multiple private equity funds can help to mitigate this company-specific risk. The broader appeal of private equity is often its outperformance potential, but Bailey states that how investors gain exposure matters just as much as where they allocate. While a large institution might allocate $1 billion to secure

ten private equity fund commitments, each with a $100 million minimum, most smaller institutional investors can’t access such diversification on their own. Bailey and Mendenhall believe it benefits investors to think about an approach to getting diversified exposure to the private equity asset class through a single investment. By assembling a portfolio across dozens of funds and hundreds of underlying companies, it can reduce idiosyncratic risk in a way that’s very hard for [small institutional investors] to do on their own,” Mendenhall notes. “In a multi-strategy fund, each investor can get exposure to several high-quality funds that invest in hundreds of portfolio companies,” Bailey adds. “It’s diversification that would otherwise be out of reach, achieved on a fraction of the capital.” The multi-strategy design is built around deliberate diversification across primary funds, secondaries, and co-investments – spanning small and large buyouts, growth equity, and different vintage years. “Each of those elements plays a role,” Bailey explains. “Primary funds give you that long runway of potential return, secondaries offer earlier performance and liquidity, and co-investments allow you to be more targeted.” And diversification isn’t just about allocating across different asset classes. It’s also about navigating cycles. Because capital in primary funds is invested over time, investors can be exposed to different parts of the economic cycle. As private equity AUM has grown more than fivefold since 2005, so has the complexity of managing it. Multi-manager strategies can provide access at a more capital-efficient scale, helping institutional investors avoid overexposure to any single company, manager, or moment in the cycle.

“Secondaries are helping investors solve for both diversification and liquidity. Especially in today’s environment, they can provide well-priced exposure to portfolios that are already partially built, with shorter duration to exit and better visibility into the underlying assets”

Melissa Mendenhall, Fidelity investments

A way to address the challenges of accessing and diversifying exposure in private equity, historically hindered by high minimum-investment requirements, is through multi-manager solutions. This not only makes private equity more accessible, especially to smaller institutional investors, but it also allows for diversified exposure that mitigates idiosyncratic risk. The multi-strategy design, encompassing primary funds, secondaries, and co-investments, offers a comprehensive approach to private equity diversification that ultimately generates exposures across multiple industry sectors, portfolio companies, and vintage years. Private equity has remained resilient, even during times of macroeconomic uncertainty. It benefits from its focus on long-term goals and the ability to support portfolio companies through market cycles. The insights from Fidelity Investments’ experts, Bailey and Mendenhall, underscore the importance of liquidity considerations and

diversification in investment decisions, and identifying dislocations in secondary private equity as potential opportunities for institutional investors. With secondary transaction volumes reaching record levels, the future of private equity appears robust, poised for sustained high activity and broader adoption.

Find out more

Fidelity Canada Institutional serves a diversified client base across all major asset classes, focusing on corporate and public defined benefit and defined contribution pension plans, endowments and foundations, insurance companies, MEPPS, and financial institutions. Built on over 50 years of serving the needs of institutional investors worldwide, we offer active and risk-controlled disciplines, including Canadian, US, international, and global equity, fixed-income, asset allocation, real estate, and custom solutions. 

“By investing in private equity, you’re not just diversifying what you own,” says Mendenhall. “You’re helping to diversify how value is created in your portfolio. That distinction matters, especially in markets like this.” Funds raise money every 3 to 5 years and private equity fund investing comes with significant challenges, including portfolio management, assessing manager performance, and managing risk. Therefore, to effectively gain access to high-performing private equity funds, institutional investors need an asset manager with an investment process designed to add value through careful manager selection and portfolio construction.

Building efficient diversification at scale

Liquidity as a lens: secondaries and GP stakes

Melissa Mendenhall, Fidelity investments

“The private equity model has historically helped the asset class outperform public equities”

Michael Bailey, Fidelity Investments

Published October 6, 2025