Private Equity Outlook Q4 2025: From recalibration to resilience
Private equity remains in a period of recalibration, with fundraising, deal activity, and exits still below pre-2022 levels. For investors, this creates opportunities in the form of pricing dislocations and reduced competition, especially in less efficient segments where capital is scarce.
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It can be hard to make sense of global markets at the moment.
On one hand, the investment environment appears benign and expectations of further rate cuts in the US have fuelled investor optimism. This has driven public equities indices in many regions to be at, or near, record highs.
On the other, risks are forming on the investment horizon, maintaining an atmosphere of volatility. Concerns centre on the ripple effects of tariffs, uncertainty around central bank policies and inflationary pressures, questions of fiscal sustainability, and still-elevated geopolitical risks stemming from ongoing conflicts in Ukraine and the Middle East.
Even the recent valuation exuberance, especially around growth areas such as artificial intelligence (AI), adds to the growing list of risks, given the historical pattern of boom-and-bust valuation cycles following major technological breakthroughs.
Diversification, resilience, and return opportunities
Set against this backdrop, private equity can offer a degree of insulation from some of these prevailing macroeconomic and market risks, providing exposure to differentiated sources of risk and return that can enhance portfolio outcomes.
As we have discussed previously, our research in performance during periods of crisis over the past 25 years shows that the asset class – particularly in the lower-mid-market segment – has historically delivered its strongest relative outperformance during periods of heightened public market volatility.
At the same time, private equity is currently benefiting from a convergence of cyclical and structural tailwinds that are catalysing compelling opportunities for return generation and portfolio diversification.
Structural tailwinds include the technological revolution, which is reshaping industries and capital flows – although, as we will discuss in more detail later, excitement around AI raises some potential red flags related to later-stage venture investments targeting the space.
Cyclical drivers stem from the lower transaction activity and subdued fundraising over recent years. This has created favourable capital supply-and-demand dynamics that are supporting more attractive entry valuations and improved yield potential.
Together, these factors increase the relative attractiveness of private equity, strengthening resilience and creating a more solid foundation for long-term growth. Bottom-up allocation applying high selectivity and targeting transformative value-add are crucial to capture the most attractive opportunities and drive sustainable long-term performance.
Small is (still) beautiful
Overall, then, private equity remains in a period of recalibration, as fundraising, deal activity and exits continue to lag pre-2022 levels. Slower capital flows, fewer exit routes, and prolonged holding periods have coincided with higher macro volatility, tighter financial conditions, and policy uncertainty.
Fundraising stabilises in Q2 2025 as final closes decline
Past performance is not a guide to future performance and may not be repeated. Source: Preqin Pro. Data as of 5 August 2025, Schroders Capital, 2025. Includes closed funds only. Data grouped by the year in which the fund held its final close. Fund count includes funds with undisclosed final close fund size. The views shared are those of Schroders Capital and may not be verified. There can be no assurance that any objective or intended outcome will be achieved.
Exit activity remains muted in Q2 2025
Past performance is not a guide to future performance and may not be repeated. Source: PitchBook Data, Inc. as of 13 August 2025, Schroders Capital, 2025. Includes Buyout and VC/Growth. Completed exits. Sponsor-to-sponsor data includes GP-led continuation vehicles. The views shared are those of Schroders Capital and may not be verified.
Yet these dynamics are also creating a more favourable environment for disciplined investors. Reduced competition, especially in less efficient segments of the market, wider pricing dispersion, and increased manager selectivity are laying the groundwork for stronger vintages ahead.We see the most compelling opportunities emerging through three complementary levers that help investors navigate today’s challenges: local champions, transformative growth, and multi-polar innovation.
- Local champions are businesses with predominantly domestic revenue bases, reducing exposure to trade frictions, tariff uncertainty, and shifting supply chains. Their earnings resilience and control over local value chains can help buffer portfolios against geopolitical shocks.
- Transformative growth involves investing in companies where complexity, operational improvement, or innovation create controllable value-creation paths that can offset broader market turbulence. In a more selective environment, operational value-add has become the key differentiator of returns.
- Multi-polar innovation captures the expanding global technology landscape. Breakthrough growth is now distributed across multiple hubs spanning the US, Europe, China, India, and broader Asia-Pacific, diversifying opportunity and reducing reliance on single-market cycles.
These themes converge across three strategy areas: small- and mid-sized buyouts, continuation investments, and selective early-stage venture.
Small and mid-sized buyouts: The resilience engine
Small and mid-market buyouts (for us, enterprise values less than $1 billion) continue to anchor portfolio resilience. They combine more attractive entry valuations, lower leverage, and greater operational agility than large-cap deals. Industry and Schroders Capital data show average purchase price multiples remain around 7.7x EV/EBITDA, over 40% below large-cap equivalents, creating significant headroom for value creation.
Small-mid buyouts trade 40–50% below large-cap and public peers
Past performance is not a guide to future performance and may not be repeated. Source: Capital IQ, Bloomberg, Global M&A Outlook 2025, Robert W. Baird & Co., Schroders Capital, 2025. North America and Europe M&A. Completed deals. Russell 2000 EV/EBITDA is calculated using EBITDA from the latest trailing twelve months. The views shared are those of Schroders capital and may not be verified or might be subject to change.
This segment’s defensive characteristics are further reinforced by its structure: over four-fifths of transaction value across private equity buyouts, the majority of which are small and mid-market deals, is now service-oriented – and portfolio companies typically generate a large share of revenues domestically.
This focus on essential, localised services reduces exposure to global trade and capital-market cycles. Exit routes also tend to be less dependent on IPO markets, with trade sales and sponsor-to-sponsor transactions offering steadier realisation pathways.
Continuation investments: Extending the value-creation runway
Continuation vehicles have become an increasingly important tool for private equity managers to extend ownership of high-conviction assets beyond traditional holding periods. By enabling managers to retain and further develop portfolio companies through their next stage of growth, these vehicles align long-term value creation with investor liquidity preferences.
The market for continuation strategies has expanded at roughly 27% annually since 2013, reflecting both cyclical and structural demand for longer-duration investments – and our forecasts show the segment could quadruple over the coming decade. In today’s muted exit environment, these structures are proving especially valuable, offering the potential for more predictable outcomes and faster time to liquidity – around 18 months shorter than conventional buyouts.
Continuation investment market growing – driven by structural factors
Past performance is not a guide to future performance and may not be repeated. Pitchbook, Preqin, Jefferies, Greenhill, Evercore, Lazard, PJT, Schroders Capital, 2025. Buyout distributions estimated averaging yearly values from Pitchbook and Preqin. Continuation investments exit value estimated using averaged yearly values reported by Jefferies, Greenhill, Evercore, Lazard and PJT, including only buyout and growth strategies globally and excluding structured transactions and unfunded commitments in continuation vehicles. Cyclical component calculated by correcting historical values for excess of buyouts plus continuation investments pool above historical secondary buyouts average of 36%. Forecasts and estimates may not be realized. The views shared are those of Schroders Capital and may not be verified.
Our forecasts show market expected to quadruple in size in next decade
Past performance is not a guide to future performance and may not be repeated. Source: Pitchbook, Preqin, Jefferies, Greenhill, Evercore, Lazard, PJT, Schroders Capital, 2025. Includes buyout and growth strategies globally, excludes structured transactions and unfunded commitments in continuation vehicles. Continuation investments’ growth as % of buyout distributions modelled using a sigmoid function with saturation point at 13% in 2045. Grey bars show delta between reported secondary transaction value and exit value attributed to buyout continuation investments (consisting of fresh capital and continuation investments for strategies other than buyout), the average of which we have applied to forward-looking forecasts to generate a total forecast value. Assumptions: 50% Preqin’s forecasted NAV growth until 2029 (50% of CAGR thereafter), distribution rate returns linearly to 20% in 2027. Forecasts and estimates may not be realised. The views shared are those of Schroders Capital and may not be verified.
For investors, the appeal of continuation investments centres around the potential to generate strong, but more predictable, return profiles and faster liquidity. Schroders Capital data on realised continuation investments suggests that these deals have more normally distributed returns and a smaller tail-risk profile compared to traditional buyouts – and that hold periods are 1.5 years shorter on average, equating to a 25% faster time to liquidity.
Early-stage venture: Capturing distributed innovation
Early-stage venture capital offers exposure to the global, multi-polar innovation cycle, where technological breakthroughs are emerging from diverse regions and ecosystems. We believe that, in today’s environment, venture capital matters more than ever, with its stellar, long-term return opportunities highly valuable at a time of uncertainty and volatility.
As of 2025, we are in the early stages of a new innovation upswing following the correction of 2022–2023; the “boom-bust” cycle has reset the playing field advantageously for new investments. Specifically, we believe the best opportunities continue to be found in the earlier stages of the start-up venture lifecycle. Valuations for late-stage rounds have come down significantly from 2021 highs, but are once again rising – and exuberance in particular segments such as AI warrants caution.
Late-stage valuations are rising again and approaching 2021 levels
Past performance is not a guide to future performance and may not be repeated. Source: PitchBook Data, Inc. as of 23 August 2025, Schroders Capital, 2025. The views shared are those of Schroders Capital and may not be verified.
Beyond early-stage exposure, our long-term venture playbook focuses on ‘quality density’, that is backing top tier managers and doubling down on high-potential portfolio companies, as well as smart diversification across managers, geographies and sectors, and disciplined investing across cycles. We currently see particular potential in biotechnology, which has weathered several years of risk aversion and now offers more attractive entry valuations.
Biotech VC market cooled further, opening contrarian opportunities
Past performance is not a guide to future performance and may not be repeated. Source: PitchBook Data, Inc. as of 1 September 2025, Schroders Capital, 2025.The views shared are those of Schroders Capital and may not be verified.
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