I recently attended the PEI NEXUS conference - a gathering of Private Equity leaders focused on global investment and capital allocation. While there, I heard several themes on the forces shaping our industry, and though they are admittedly not novel, it was helpful to hear what is top of mind. Below I’ve outlined three themes I found most compelling:

What got us here won’t get us there - value creation will increasingly need to come from margin expansion

When looking at enterprise value created by PE over the last 15 years, one of the speakers put forth an analysis that indicated that the majority of value has come from multiple expansion and revenue growth, but virtually none has come from margin expansion. This was striking.

Put bluntly, multiple expansion and revenue growth have historically been easier to achieve than margin expansion. Multiple expansion has been buoyed by an increasingly competitive M&A landscape that has driven up the prices of assets. Revenue growth can often center around refining and then fueling go-to-market activities. But margin expansion requires a more concerted effort - e.g., creating true differentiation, entering new/more attractive adjacencies, launching innovative products/services, etc.

While multiple expansion and revenue growth will likely continue to play a role in the value creation agenda, they may be harder to realize in the future given the increasingly competitive nature of PE and the feeling that a lot of low-hanging fruit has been plucked. This will likely require PE firms to shift more attention towards margin expansion to achieve their goals, something both GPs and LPs noted.

It feels as if we are entering a new stage of the private equity lifecycle whereby a more advanced and concerted effort around margin expansion will not be optional – it will be necessary – to win.

Looming trade tariffs have temporarily slowed down deal activity but are likely to create opportunities for those able to capitalize

Tariffs are a macroeconomic tool, but private equity firms are in the business of microeconomics. In other words, it is impossible for firms to fully understand the impact of tariffs on their portfolios without a detailed review of their portco P&Ls. I heard many firms talk about how the last few weeks have been about evaluating the impact of tariffs on their portfolio at a firm-by-firm, market-by-market, and even P&L-by-P&L basis.

This reminded me of what I saw in the market during the early days of the COVID-19 pandemic, as well as the supply chain disruptions of 2022. In both instances, deal flow temporarily slowed as firms worked to build a deeper understanding of risk to their portfolios and investment theses. Once firms worked to gain comfort, though, it was back to business as usual — and possibly even with an added investment angle that they might capitalize on.

I believe this case will be similar – once firms have a solid view of the impact tariffs may have on markets, there will be investment opportunities. But realizing those opportunities will require a unique set of value creation capabilities (e.g., onshoring labor and operations, overhauling procurement and sourcing strategies, shifting end-market exposures, executing sophisticated pricing techniques, etc.) that PE firms will need to tap into.

There is a push to sell assets as a means to get capital flowing again, but value creation efforts may be required to jumpstart that activity

For the last few years, LPs have received less liquidity from their PE investments than they expected. LPs appear frustrated by this, but PE firms understand the assignment – they need to return capital to LPs. The challenge is 2020/2021 was a much hotter market than 2024/2025, and PE firms don’t want to realize the write-downs on assets bought in this vintage. It felt to me as though there was a broad acknowledgement of the need to sell assets, but little in the way of great solutions that protect ROI.

This highlights the need for new sources of value. When asset multiples start going in the wrong direction, it puts even more emphasis on the need for value creation that is resilient and defensible. I can envision a world in which value creation goes into overdrive in 2025+ in order to play “catchup” on some of the ground lost on the 2020/2021 vintage assets.

Conclusion – We are at a crossroads in the private equity landscape, and value creation may be able to help us navigate it

Over three days, I heard a lot about the headwinds and challenges facing the private equity industry. Despite that, I was inspired by the general optimism and a sort of “we will figure this out” mentality. It’s impossible to tell what the future will bring, but it's clear to me that value creation will remain front and center in 2025 as a means to win.