Private Equity: Why Europe Is Preparing for Its Comeback

According to the analysis published by Arthur D. Little and Invest Europe, 45% of GPs anticipate a recovery in fundraising as early as 2026, a significant figure in an environment where capital has become more demanding. This renewed confidence is not attributed to a return to easy money or a massive easing of monetary conditions, but rather to a profound market adjustment. Following the post-Covid liquidity excess and the frenzy of 2020-2022, private equity is returning to more rational mechanisms: less stretched valuations, strengthened due diligence processes, and stricter prioritization of deal flow.

The report highlights the growing disconnect between the perception of GPs, still engaged in the search for industrial opportunities, and that of LPs, who are more sensitive to prudential constraints and the cost of committed capital. However, both categories converge on one point: Europe is gaining ground on the United States. This is not because Europe has become a new haven, but because it currently offers a clearer risk-return profile. American political tensions, fiscal instability, and the risk of increased tech volatility are prompting some investors to reconsider their allocations.

Defense and AI: The Two Magnets of European Capital

The ADL report identifies two mechanically attractive sectors: defense—now considered an essential sovereignty sector for European LPs—and artificial intelligence, which benefits from a more stable regulatory framework than in the United States. The GPs interviewed mention a growing demand for specialized strategies that combine innovation, industrialization, and security of value chains. Europe is far from rivaling the depth of the US market, but compensates with better regulatory clarity in these sensitive segments.

This sector realignment occurs in a context where funds have dry powder (undeployed capital) but use it sparingly. Mega-deals are becoming rare; mid-cap transactions, better valued and more granular, are becoming the norm again. ADL highlights that this « renewed discipline » is a positive signal: it reduces the risks of disconnection and restores an investment logic based on fundamentals.

Meanwhile, LPs—insurers, pension funds, sovereign wealth funds—are rebalancing their portfolios. Constrained by stricter prudential rules, they are favoring less cyclical private equity strategies: infrastructure, climate, defense, and industrial technologies. This movement, far from being anecdotal, could reshape European allocations over the next five years.

A Slow but More Sustainable Recovery

The study ultimately shows that European private equity has entered a less spectacular but potentially more robust phase. Fundraising prospects do not suggest a return to euphoria: only 14% of GPs and 6% of LPs expect a decrease in fundraising, indicating that downward pressure is waning, though it doesn't mean the momentum has reignited. Europe continues to face challenges: market fragmentation, energy transition costs, and political uncertainties. However, it enjoys a major comparative advantage: a perception of relative stability in an uncertain world.

For French investors, the message is clear: post-2024 private equity is neither an artificial growth cycle nor a rediscovered golden age, but a market where selection, specialization, and pricing once again become the key variables. The ADL / Invest Europe study delivers an unambiguous message: Europe does not need to be spectacular to become attractive again. It simply needs to remain consistent.