Pomona Capital is in active discussions with portfolio fund general partners to closely monitor the potential impact of the developments in U.S. and global tariff policies on our portfolios. The limited feedback we have received so far suggests that the immediate effect on the majority of portfolio companies has been minimal to date.
A preliminary sector analysis indicates that most of our portfolio of several thousand companies is concentrated in areas that are either service driven or are in industries such as financial services, software, healthcare, and domestic business services that are not today facing significant direct consequences from current tariff actions. Pomona does not own a slice of the generic market, and we have little to no exposure to emerging markets, venture capital, or raw materials.
However, no company will be immune from the potential effects of such a dramatic change in global trade. Broader macroeconomic fallout from the emerging tariff situation will take time to develop and may have meaningful effects on all economic actors. It is still early days, and the situation seems to change day to day, if not hour to hour.
The Pomona strategy has always focused on delivering the benefits of private equity while reducing risk. We believe our combination of diversification, high quality assets, disciplined pricing, and a focus on liquidity differentiates Pomona within the private equity industry generally and within the secondaries sector specifically.
In this time of uncertainty, Pomona Capital is executing on two key priorities: First, to navigate the challenges, playing strong defense to protect our portfolio and our capital. Second, to seek out opportunities created by dislocation to play aggressive offense. Both the challenges and the opportunities may be significant.
We will continue to evaluate the situation carefully and will continue to communicate to all of our investors frequently and directly. Please do not hesitate to reach out if you have further questions.
A note about risk:
General risks to consider
Secondary investments: The ability of the manager to select and manage successful investment opportunities, underlying fund risks; these are non-controlling investments, no established market for secondaries, identify sufficient investment opportunities, and general economic conditions. Primary investment: Identify sufficient investment opportunities, blind pool, the manager’s ability to select and manage successful investment opportunities, the ability of a private equity fund to liquidate its investments, diversification, and general economic conditions. Venture capital: Characterized by a higher risk and a small number of outsize successes, has the most volatile risk/reward profile of the private equity asset class. Growth equity: these companies typically maintain positive cash flow and therefore present a more stable risk/ reward profile. Mezzanine financing: Has the most repayment risk if the borrower files for bankruptcy and in return, mezzanine debt generally pays a higher interest rate. Leveraged buyout: Generally exited through an initial IPO, a sales to a strategic rival or another private equity fund, or through a debt-financing special dividend, called a dividend recapitalization. Distressed buyout: Offer the opportunity to invest in debt securities that trade at discounted or distressed levels with the potential for higher future value if the company recovers.
General private equity risks
Private equity investments are subject to various risks. These risks are generally related to: (i) the ability of the manager to select and manage successful investment opportunities; (ii) the quality of the management of each company in which a private equity fund invests; (iii) the ability of a private equity fund to liquidate its investments; and (iv) general economic conditions. Private equity funds that focus on buyouts have generally been dependent on the availability of debt or equity financing to fund the acquisitions of their investments. Depending on market conditions, however, the availability of such financing may be reduced dramatically, limiting the ability of such private equity funds to obtain the required financing or reducing their expected rate of return. Securities or private equity funds, as well as the portfolio companies these funds invest in, tend to be more illiquid, and highly speculative.