Invest Europe 2025
THE INSIGHT: STATE OF THE EUROPEAN PRIVATE EQUITY INDUSTRY
Cautious optimism in the face of unpredictability
6th edition
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Invest Europe 2025
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Yet the European fundraising environment remains challenging. Capital raised in the first half of 2025 was down 20% on the year at €54 billion, leaving it largely in line with the prior six months. This reflects the fact that while sentiment has improved, with PE and venture capital (VC) managers refilling potential exit pipelines and seeking new investment opportunities, that activity is not yet showing up in the data.
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Europe and its private equity (PE) industry are in a very different place from where they were 12 months ago — largely thanks to events on the other side of the world. The uncertainty created by US tariffs has led to a newfound appreciation of Europe’s relative stability and predictability. At the same time, the drive for a stronger and more secure Europe that is less reliant on the US is opening up opportunities in industries like defense that will persist far into the future.
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Funds raised by European PE and VC funds
The sense of rising optimism is also tinged with caution. The exit market remains unpredictable, and general partners (GPs) and limited partners (LPs) are aware that broader conditions can change quickly, with immediate consequences for PE and VC markets. However, once optimism leads to action, there is plenty of cash to provide momentum. The pool of dry powder for investment in Europe amounts to €414 billion.
This is in keeping with analysis and anecdotal evidence that funds are taking longer to raise capital and reach final close, while others are reining in fundraising targets or even delaying capital raisings.
One source of capital being targeted is (ultra) high-net-worth individuals. A large number of GPs are marketing to this segment, which is already being tapped by firms that see it as easier to market to a small number of very wealthy investors. Around 8% of fundraising came from private individuals in 2024.
Interest level to market future funds, irrespective of regulatory barriers
Some 40% of fund managers see European funds benefiting from the unpredictability of the Trump administration and its tariff policy, and the same proportion of LPs expect to commit more capital to European funds as a result.
Investments by type in value and volume
Growth investment and VC were more resilient in terms of equity invested, reflecting a focus on themes like deep tech and AI, which are seen as high-growth plays regardless of the geopolitical and macro backdrop.
The opportunities and risks presented by AI have become the dominant factor for GP work practices. Almost all intend to focus more on AI in the near term — both as a value-creation lever, and in their day-to-day roles to ensure long-term survival and growth.
AI is increasingly seen as a key differentiating factor for firms, with almost half of GPs citing use of the technology as a key selling point. The impact of AI is also being seen in due diligence practices, with firms seeking to understand how it could impact target companies and attempting to assess its potential for both value destruction and creation.
Most important factors for PE firm differentiation within market in next two to three years
As AI rises, ESG and DEI are sliding down the agenda. This does not necessarily mean these measures are no longer important to GPs and LPs, but that adoption has become the norm and no longer a differentiating factor.
More than four-fifths of fund managers also intend to concentrate more on geopolitical risk, given how today’s unpredictable environment is impacting trade and businesses, with assessments of tariffs and other trade barriers becoming a new focus area for almost two-thirds of GPs.
Elevated geopolitical risk is also driving increased interest in the defense industry. Almost half of GPs are now willing to consider investments in dual-use military and civilian goods and technologies, double the level of last year and roughly five times the 2022 response.
Change in willingness to consider investments in military- or defense-related sectors
There is also increased willingness among GPs and LPs to back investments for military-only use. Almost a third of LPs are willing to invest in military-only technologies, more than four times the 2022 response.
Divestments weakened in the first half of 2025 as geopolitical and macro concerns weighed on company outlooks and valuations. The total of €13 billion (at original investment cost) was 46% lower in value terms than the preceding six-month period, and the number of divestments fell by 37%.
Divestments by type in value (at cost) and volume
This has led to a rise in popularity for continuation funds. Previously a tool mainly to manage challenging companies that need more work away from the main fund, they are increasingly being used to hold performing companies for longer while awaiting a recovery in valuations, or to drive another growth phase.
A third of LPs expect to allocate more to continuation funds in the coming year (making it the second-largest growth strategy after secondaries), but well over half would still prefer a traditional exit, even if below valuation expectations. Overall, only 14% of LPs favor continuation funds, while more than a third of GPs are leaning towards them.
Sentiment and activity can sometimes tell contrasting stories, particularly in unpredictable times. This time last year, optimism was returning to the industry as inflation receded, and central banks implemented the first interest-rate cuts since the pandemic. The potential of a Trump administration in the US was expected to be a tailwind for renewed private equity (PE) activity globally.
Cautious Optimism
The Fight for Fundraising
Fundraising can show sharp variations from one half to the next, particularly when looking region by region. This was the case in the first half of 2025, with UK and Ireland fundraising jumping by 60% from the prior six months, making up 45% of total capital raising. However, most other regions contracted, and the majority are now at or near their lowest levels this decade.
Uncertainty Reigns
Yet while more than a quarter of GPs are positive about their ability or willingness to invest in Europe, a larger proportion — a third — are negative on their ability to exit companies in Europe because of Trump’s tariff policy.
Europe is also not immune from the uncertainty US tariffs are generating. Optimism around PE investments in Europe may be rising, but actual investments fell by 31% in value in the first half of 2025 compared with the prior six months (and dropped by 11% on the year), driven by a sharp decline in buyout investment amid concerns about the potential impact of an economic slowdown caused by tariffs.
AI Up, ESG Down
Offensive on Defense
New Routes to Liquidity
Dive deeper into the trends driving the European PE market by downloading Arthur D. Little’s “The Insight: State of the European Private Equity Industry,” which includes quantitative and qualitative data based on surveys of 362 PE professionals.
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