This was a year punctuated by major political events for the US.

First was the Tax Cuts and Jobs Act of 2017, the biggest change to US tax policy in decades, which came into effect on 1 January. Then came the introduction of several rounds of tariffs on Chinese products totaling $250 billion-worth of goods. Then came the mid-term elections which saw the House of Representatives move into Democrats’ hands for the first time since 2010.

As major as these events were, they seem to have barely made a dent in private equity activity; 2018 got off to a strong start, and the momentum kept up throughout the year.

“It was helpful to get rid of that overhang of uncertainty on tax reform in terms of how it was going to affect private equity sponsors,” said Christopher Anthony, a partner at Debevoise & Plimpton. “Once that was known, it was shrugged off and deal volume continued to be strong, and even accelerate going into 2018. That’s continued all year.”

In the first three quarters of the year, 3,501 deals closed for a total of $509 billion, according to data from PitchBook – a year-to-date increase of 2.1 percent and 3.4 percent, respectively.

The tax bill was, on balance, a positive for the private equity industry. The public markets traded up on the news, bringing private markets valuations with it, and earnings growth strengthened. The bill made much more capital available to large US-based strategics – a positive for private equity firms looking to offload portfolio companies.

It is, in fact, this continued market exuberance which is causing some to take pause. Schroder Adveq and Partners Group recently described themselves as “more bearish” and “more neutral”, respectively, on private equity as sky-high valuations continued. As of 28 September, the median EBITDA multiple paid by a US private equity firm was 11.9x – a shade down on the 12.1x recorded in 2017 – made up of 6.2x debt and 5.7x equity.

“Leverage levels are high,” said Brian Gildea, head of investments at Hamilton Lane. “Interest costs are low and debt service levels are still high. Some of the bank guidelines around leverage levels were loosened a little bit at the midpoint of the year. That’s part of the reason you saw leverage levels tick up a little bit.”

In such a high-priced environment, GPs are increasingly turning to buy-and-build as a way of buying down valuation multiples.

Justin Abelow, co-head of the private equity practice at Houlihan Lokey, is also seeing an increase in sponsor-to-sponsor recaps as sellers look to take advantage of a strong exit environment.

“The costs of going public are so high that in a lot of cases today the most obvious course of action is for the sponsor to sell half the business to another sponsor. You see that happening time and again,” he said.

“And for every time we’ve seen it happen, there must be a dozen conversations happening about things like that. It’s very possible we’ll see a very large increase in those transactions in the months to come.”

After a slew of mega-funds closed in 2017, fundraising this year was a little more muted. As of 7 December, 260 North America-focused funds had closed on a combined $174 billion, compared with 453 funds with a combined $239 billion in 2017, according to PEI data.

This is a sign of good discipline from LPs, said Gildea: “Now’s really not the time to be stretching or chasing allocation”.