Institutional inflows into private equity stay flat as mid-market opportunities grow
Investments in private equity by European institutional investors have remained broadly flat since the end of the Covid-19 pandemic but there are signs asset owners are looking at smaller scale opportunities (Geert Vanden Wijngaert/Bloomberg)
While investor appetite for private equity deals remained muted in 2025, industry specialists say the best managers will be able to increase their fundraising levels in 2026 as many asset owners continue to eye up mid-market private equity opportunities.
According to MandateWire data, investments in private equity by European institutional investors have remained broadly flat since the end of the Covid-19 pandemic.
Last year, a net £4.7bn was poured into private equity deals by European investors, only slightly higher than the £4.3bn seen in 2021 and down on the £6.3bn tracked in 2022.
Bain's Private Equity Midyear Report 2025 points to the lack of liquidity in private equity funds as a "source of pain" for investors contributing capital, adding that the slow distribution of returns back to investors "impedes fresh fundraising".
At an aggregate level, the private equity industry is facing ongoing challenges in attracting new fundraising.
In a survey published by consultancy Arthur Little in collaboration with Invest Europe — the trade association representing the continent's private equity and venture capital industry — in November, more than a quarter (28 per cent) of limited partners expect to invest more in private equity during the next three years, while 66 per cent of LPs expect their allocations to stay the same.
One in three general partners noted the "negative" impact of the US administration and its tariff policy on their ability to exit portfolio company investments.
The report adds that private equity investments fell in the first half of 2025 by more than 30 per cent on the same period the year before.
PE investors grow more discerning amid fundraising slump and liquidity challenges
Bfinance also found in its November 2025 Manager Intelligence and Market Trends report that investors had lowered their manager search activity of the asset class in the third quarter of 2025, with lower exits and fund distributions remaining a "key concern" for LPs in deals.
"Private equity markets remained in a holding pattern through the third quarter, navigating a backdrop of sluggish exits, constrained distributions and cautious deployment. Managers continue to adapt to a slower realisation environment with valuations stabilising," the consultancy says.
Some industry specialists predict that private equity fundraising will improve this year even as investors become significantly more selective over the deals they wish to back.
Emily Brown, a partner at White & Case and head of the law firm's global private capital industry group, says she expects new capital commitments and use of secondary funds to increase this year, but adds that managers will need to "demonstrate consistent performance and clear value-creation levers" as investor momentum returns.
In its Private Equity and Investment Funds outlook for 2026, White & Case's global private capital industry group wrote that LPs were becoming "more discerning" in their capital allocations, favouring larger GPs with "strong track records". It added that "smaller and more specialised players may face tougher conditions".
This assessment was echoed at the recent Edelman Smithfield Investor Summit in London. There, Deborah Wardle, head of portfolio management for EMEA at Mercer, told the audience that careful manager selection was growing in importance across private private markets given the high differentials in manager returns.
"You can have a [private markets] sector that's challenged, but you can have an exceptional GP, and for us it's making sure we're balancing that top-down opportunity set with making sure your bottom-up is also right in terms of manager selection, because we know dispersion between top quartile and bottom quartile [performance] is huge," she said.
Signs of optimism for private equity from the UK
Some signs of optimism for the asset class last year came from British pension investors, making commitments off the back of UK chancellor Rachel Reeves' drive to get the pensions industry to invest in UK private assets.
Investments included the £5.7bn NOW:Pensions master trust and the Mercer Master Trust's joint £350mn commitment to the Schroders Mercer Private Assets Long-Term Growth Fund, managed by Future Growth Capital, which MandateWire reported on in December.
Stephen Budge, LCP consultant who advises large UK defined contribution pension schemes, tells MandateWire Analysis that pension funds have rapidly grown in sophistication as they have sought to dive into private equity and other private asset opportunities.
"Twelve months ago, they were quite simplistic [allocations]. We're now talking about quite complex allocations into private markets," Budge explains. However, he says, some investors are still waiting to draw down funds from other allocations before making new ones.
“Twelve months ago, [DC funds had] quite simplistic [allocations]. We’re now talking about quite complex allocations into private markets”
Mark Jaffray, a partner and senior DC investment consultant at Hymans Robertson, tells MandateWire Analysis that as the UK's listed equity market has waned in popularity in recent years, pension schemes have had to "look to diversify elsewhere", including in UK small and mid-cap companies and private markets.
Family office investors have also signalled strong interest to back private enterprises, including the Irish multi-family office Elkstone Partners and the Munich-based single family office Forum, which both made software-related acquisitions late last year.
Investors favouring middle-market opportunities
Investors canvassed by MandateWire are eyeing mid-market opportunities in particular.
The £55bn Border to Coast Pensions Partnership has committed more than £200mn to funds focusing on mid-market private equity deals, both in Europe and globally.
Meanwhile, Fábio Alves, the €90mn (£78.1mn) Virtus multi-family office's founder and director, told MandateWire towards the end of last year that mid-market private asset opportunities were becoming "bread and butter" for family office investors.
This assessment was echoed by Mark Florman, founder of the UK-based single family office Times 3 Capital, who explained in May that his office was favouring lower and mid-market private equity managers in both Europe and the US.
"We really like lower mid-market [managers] in Sweden, Germany, France and the UK," he said.