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Global Perspectives
When Politics Sets the Price of Money
Each summer, the quiet mountain town of Jackson Hole, Wyoming, becomes the epicentre of global economic debate.
Against the striking backdrop of the Tetons, central bankers, policymakers, and economists gather to take stock of the international financial system. More than just a conference, the annual Jackson Hole symposium has often marked turning points in global monetary policy.
The 2025 meeting, which took place between 21–23 August, arrived at a moment of acute tension for both policymakers and investors. The extraordinary interest-rate hikes of 2022 and 2023 — more than 500 basis points in little over a year — continue to shape the landscape. For private capital markets, the question is no longer when rates will fall, but whether the fiscal and political backdrop will allow central banks to reduce them meaningfully at all.
This year’s conversations did not just revolve around inflation targets and unemployment statistics. Delegates grappled with something far more structural: the prospect of governments’ debt burdens and political imperatives increasingly dictating monetary choices; a phenomenon known as fiscal dominance.
For private equity and private capital investors, the implications are profound.
The Legacy of the 2022–23 Tightening
The interest-rate shock of 2022–23 was designed to break the back of inflation, but it also broke the rhythm of private markets. Valuations compressed, the cost of leverage soared, and refinancing risks became far more acute. Most damaging of all, exit markets dried up.
Today, industry data suggest that around 30,000 private equity–backed companies sit in portfolios globally. More than half have been held for five years or more, well beyond the horizon most limited partners (LPs) expected. Pension funds, endowments, and wealthy individuals who had banked on regular distributions are instead facing years of illiquidity.
For general partners (GPs), the response has been innovation. Continuation funds, net asset value loans, and other financing tools such as partial realisations and minority exits have proliferated. Secondary markets have matured rapidly. Yet while these mechanisms relieve pressure, they cannot substitute for functioning exit routes. Private equity thrives on recycling capital — and without a healthy pipeline of IPOs, trade sales, and recapitalisations, that recycling mechanism is impaired.
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Inflation, Interest Rates, and Central Banks
What happened at Jackson Hole this year will go some way to answering whether relief is in sight. On one side of the ledger, inflation has slowed considerably from its 2022 peaks. On the other hand, it remains uncomfortably sticky, particularly in services, and far above central banks’ formal targets in several jurisdictions.
The Federal Reserve is shaping to cut rates as early as this autumn, but it is unlikely to do so aggressively. Policymakers are deeply wary of easing too quickly and reigniting inflationary pressures. The Bank of England has already trimmed to 4.0%, yet finds itself constrained by domestic inflation dynamics and a fragile fiscal backdrop.
The European Central Bank, after modest early cuts, is signalling a pause, reflecting both caution and the recognition that fiscal frameworks within the euro area remain uneven.
The Bank of Japan provides a striking counterpoint. After decades of ultra-loose policy, it is tentatively moving in the opposite direction, carefully raising rates, as inflation finally takes root in a tight labour market.
China’s central bank, meanwhile, has confined itself to selective easing, unwilling or unable to launch the sort of broad stimulus that many outside investors have called for.
The message across all these institutions is broadly consistent: rates may ease at the margin, but the era of ultra-low borrowing costs is unlikely to return. And while policy rates may drift lower, longer-term yields look set to remain sticky, reflecting the deeper fiscal imbalances confronting advanced economies.
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Debt and the Spectre of Fiscal Dominance
It is impossible to discuss interest rates in 2025 without addressing the debt overhang. Global borrowing now exceeds US$324 trillion, more than three times world GDP. For advanced economies, servicing that debt is becoming steadily more expensive.
In the United States, net interest payments already consume around 3.2% of GDP, and official projections suggest this will rise toward 4% by the mid-2030s. In the United Kingdom, the figure is close to 3.7%. These percentages may appear modest, but in fiscal terms, they are transformative. Roughly one in every five tax dollars in the US is now spent on debt service rather than healthcare, defence, or education.
Still, this is the reality of fiscal dominance: the point at which the state’s financing needs intrude on monetary independence. Central banks may still speak of inflation targets and policy frameworks, but markets are beginning to assume that debt dynamics will ultimately shape the trajectory of interest rates. The result is higher term premia — investors demanding greater compensation for holding long-dated government bonds — which keeps yields elevated regardless of short-term policy moves.
For private capital, this translates into a structurally higher cost of leverage and more conservative valuation assumptions. The models of the 2010s, premised on abundant cheap money, no longer apply.
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Geopolitics and the Drag on Exits
If debt and inflation provide one set of challenges, geopolitics offers another. Trade disputes have become an entrenched feature of the global landscape.
The European Union’s levying of tariffs on Chinese electric vehicles saw Beijing launch retaliatory probes into European exports, including brandy and pork. The United States has expanded tariffs on metals, reviving concerns over industrial supply chains.
These measures may be narrow in scope, but their psychological impact on investors is broad. Global M&A volumes fell by almost 10% in the first half of 2025, even as aggregate deal values ticked higher on a few large transactions. IPO markets remain subdued, with only sporadic windows of activity.
Faced with this environment, private equity firms have leaned ever more heavily on continuation funds and GP-led secondaries. More than US$40 billion was raised through these structures in the first half of 2025 alone, underscoring both investor appetite and GP ingenuity. Yet such structures, however valuable, are often criticised as partial solutions — delaying exits rather than delivering them.
The Role of International Finance Centres
International finance centres (IFCs) may not influence monetary policy or trade negotiations, but they have a pivotal role to play in easing the constraints on private capital.
By modernising their legal and regulatory frameworks, IFCs can provide the infrastructure that allows liquidity to flow even in challenging markets.
Clear standards for continuation funds ensure transparency and fairness, making such transactions more palatable to limited partners. Codifying net asset value and hybrid financing frameworks can help managers bridge liquidity gaps responsibly.
IFCs can also support the mechanics of exits. Faster listing regimes, harmonised disclosure standards, and dual-track pathways for trade sales and IPOs can shorten the time between decision and execution. In an era where market windows may be brief, these efficiencies matter.
Finally, IFCs can provide geopolitical resilience. By offering treaty-friendly and tariff-resilient holding structures, they enable investors to continue executing cross-border deals.
How Private Capital Firms Should Respond
For general partners themselves, the priority must be pragmatism. Waiting for perfect conditions is a recipe for further backlogs. Instead, portfolios should be actively triaged: some companies readied for near-term trade sales, others positioned for dual-track Trade sale or IPOs in 2026, and the remainder placed into continuation vehicles where value creation genuinely justifies a longer hold.
Secondaries should be executed with discipline. Independent valuations, transparent processes, and genuine choice for LPs are essential if GP-led transactions are to be seen as credible solutions rather than self-serving exercises.
The refinancing wall of 2026–28 looms large, and firms should use today’s still-open credit markets to term out debt maturities early. Where necessary, alternative lenders and private credit solutions can provide the flexibility banks may not.
And above all, investment theses must shift toward tariff-light and politically resilient sectors. Services, technology, healthcare, and regulated infrastructure currently look far more attractive than globally traded goods exposed to the shifting sands of tariff policy.
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Looking Ahead
What, then, should we expect as 2025 moves into 2026? Gradual rate cuts in the United States and United Kingdom seem likely, though unlikely to be transformative. The European Central Bank will move slowly, and the Bank of Japan may edge higher still. Inflation will continue to ease, but most likely remain above official targets well into 2026. Global growth is projected at around 3%, though subject to obvious downside risks from trade disputes and populist politics.
For private capital, the exit environment is expected to be better than the drought of 2023 and 2024, but still uneven. Trade sales and GP-led secondaries will dominate, while IPOs will appear sporadically. The overriding lesson is that geopolitics and fiscal realities have become structural, not temporary, features of the landscape.
Conclusion
Jackson Hole 2025 did not deliver a silver bullet. But it did confirm the contours of a new era. The ultra-low-rate world has gone. Fiscal dominance is no longer a theoretical concern, but a practical constraint. Geopolitics and tariffs are reshaping deal flows in ways that investors can no longer ignore.
Private equity is not merely waiting for markets to return; it's actively engineering solutions to unlock liquidity. These tools reflect both resilience and adaptability in a market shaped by high rates, geopolitics, and debt pressures.
International Finance Centres that can deliver clarity and coherence around continuation funds, NAV facilities, and structured financing will attract GPs seeking efficient exits. For limited partners, these vehicles may now offer the most actionable path to realising returns.
Private capital has shown resilience in past cycles. It can adapt again — but only by facing directly into the realities of debt, politics, and the higher cost of money.
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About Mourant
Mourant is a law firm-led, professional services business with over 60 years' experience in the financial services sector. We advise on the laws of the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Luxembourg and provide specialist entity management, governance, regulatory and consulting services.
