How Europe can sustain its private equity momentum

PE can help sustain Europe’s investment momentum by providing the capital, operational expertise and long-term view to compete globally.

In brief

• Since 2020, private equity (PE) funds have invested US$1.7 trillion in European-headquartered businesses.
• Eighty-seven percent of general partners (GPs) expect Europe to become more attractive to PE investors in the next three years.
• Policies that mitigate the impacts of trade barriers, rising business costs and regulatory complexity will help Europe stay attractive as competition for private capital grows.

Capital markets have evolved drastically over the last 30 years. Today, how and where companies look to finance expansion, innovation and transformation looks markedly different to what was the case historically.

Today’s US$20.3 trillion¹ global private capital market is increasingly complementing public markets as a source of capital and, in some cases, substituting for them.

Rapid growth in the now global US$6.8 trillion PE market² shows the importance of this sector as 14,395 European-headquartered businesses are currently backed by PE investment – twice the number of publicly listed firms, underscoring the asset class’s depth and its importance as a critical source of growth capital.³

As Europe seeks to accelerate its energy transition, implement and scale emerging technologies, invest in modern infrastructure and build up defense manufacturing capacity, PE has a significant role to play. Aside from capital, it offers a source of operational expertise, strategic guidance and long-term value creation.

To better understand these dynamics, EY teams surveyed 200 leading PE funds to explore their outlook for the continent⁴, and the factors and policies influencing future allocations. Overall, PE remains optimistic about Europe. This article pinpoints where the greatest opportunities lie, and which policies to improve Europe’s attractiveness PE investors find most appealing. It forms part of the EY insight series on Europe’s attractiveness for investment.

Sustaining Europe’s position as the world’s second-largest private equity market will depend on maintaining an environment that supports long-term investment. Surveyed funds identify tariffs and other barriers to trade, rising business costs and geopolitical tension and conflict as the principal risks to Europe’s attractiveness. To help offset these challenges, PE investors would welcome policies that reduce regulatory complexity, facilitate cross-border investments, improve access to capital and support business growth and transformation.

Private equity is a critical source of capital for more than 14,000 European businesses

Over the recent 10 years, global PE assets under management (AUM) have more than tripled from US$2.1 trillion to US$6.8 trillion.⁵ Today, Europe is the second-largest PE market globally, behind only the US.

European businesses are increasingly benefiting from strong investor demand. Between 2020 and the first half of 2026, European and international funds invested US$1.7 trillion in European-headquartered businesses, representing a significant increase on the previous 5.5 years.⁶

Why is investment surging? When asked about Europe’s relative strengths as an investment destination, PE funds ranked market size first. Europe is home to more than 300,000 medium and large-sized businesses.⁷ The comparably low penetration of PE indicates there is significant scope for future growth. Many are undercapitalized and struggle to expand internationally, so could be receptive to PE investment.

“Europe is less penetrated by PE than the US so has an enormous runway and market opportunity sitting within a landscape of robust economies, buoyant debt markets and stable regulatory environments” says Flor Kassai, Managing Partner and Head of Buyout, Inflexion Private Equity.

Surveyed PE funds rank access to finance as Europe’s second-greatest strength as an investment destination compared with other regions. Europe’s financing ecosystem has matured significantly in the past 10 years with the emergence of sophisticated private debt, secondaries and co-investment markets. Combined with its active syndicated loan and high-yield bond markets, Europe now provides PE funds with a comprehensive array of debt and equity finance options.

The broader financial services market is growing and maturing in Europe, providing funds and their portfolio companies with access to deep and sophisticated sources of finance, services and advice. Demonstrating the continued growth of Europe’s financial services sector, FDI in this industry increased 21% in 2025. It was one of the strongest performing sectors in Europe for FDI against a broader 7% decline.⁸

Surveyed funds ranked quality of life, safety, diversity and culture as Europe’s third greatest relative strength. Funds value these characteristics because they help attract top overseas talent to their portfolio companies. Indeed, four of the 10 most livable cities globally are in Europe.⁹

In addition, Europe’s relative stability and predictability has become an increasingly important structural advantage in today’s volatile investment landscape. More than half (52%) of PE funds surveyed agree that amid geopolitical and economic instability, Europe's potential to outperform will come from its commitment to a rules-based system. Just 8% disagree.

“Geopolitical uncertainty and tariffs have made investing more complex, but Europe's mid-market continues to benefit from structural advantages and resilience,” says Kassai, Managing Partner and Head of Buyout, Inflexion Private Equity.

While the middle-market continues to present a robust pipeline of highly compelling target businesses for PE investors to partner with, large- and mega-cap transactions (deals over US$1 billion in enterprise value) drove the recovery, accounting for 23% of deal volumes in 2025, a record high.¹⁰

Encouragingly, the recovery appears durable. Nearly nine in 10 GPs (87%) expect Europe’s attractiveness as an investment destination to increase over the next three years, while 83% report that their limited partners already view the region favorably. This confidence reflects Europe’s enduring structural strengths and the expectation that investment returns will remain competitive compared to other markets.

Europe is competitive across most global markets, but the US remains the return benchmark. Surveyed funds expect Europe to outperform five of the seven regions assessed. The US remains the clear exception, underscoring both the competitiveness of the global capital market and the importance of further reforms that help European businesses scale, innovate and translate their structural strengths into stronger returns.

The volume of capital raised by funds in recent years will be critical to translating positive sentiment into robust deal pipelines.

While fundraising has become increasingly challenging in recent years, today’s PE market is anything but capital-constrained. Over the past five years, PE funds have successfully raised more than US$2.9 trillion of capital and are currently armed with US$1.7 trillion in uninvested available capital (dry powder).¹¹

According to EY teams’ latest research, 90% of GPs anticipate an uptick in deployment activity over the next six months. GPs anticipate executing across the full breadth of deal strategies, with a strong focus on deployment opportunities in hard assets and counter-cyclical sectors. When asked which sectors they expect to be most attractive in the next three years, PE funds ranked healthcare services first, followed by software and IT services and then business services.

The nature of these large-scale infrastructure projects, energy transition assets, digital networks and industrial transformation programs typically involves long investment horizons, substantial upfront capital requirements and complex execution risks that require patient, long-duration capital, which is often ill-suited to traditional public market financing.

Mobilizing private capital will be critical to financing Europe's next phase of growth. The EU has started a series of reforms to do just this. For example, the Savings and Investments Union (SIU) aims to channel more of Europe’s vast household and business savings into productive investments. The initiative hopes to deepen capital markets and remove barriers to cross-border investment. But progress has been slow: insolvency frameworks remain fragmented, supervision inconsistent and cross-border investment processes unnecessarily complex.

The InvestEU funding program is more directly aimed at mobilizing hundreds of billions of euros of public and private investment into sustainable infrastructure, research and digitalization, SMEs and skills development. It does so by reducing investment risk through guarantees.

PE funds believe these efforts are beginning to gain traction. Two-thirds (66%) of surveyed firms say European regulators are successfully attracting long-term private capital into strategic sectors such as infrastructure, energy transition and technology. 75% believe climate and energy transition policies will create more investment opportunities than risks over the next three years, further underpinning a flywheel effect to support public-private partnerships.

As important as it is, PE investment provides more than just capital. It combines financing with operational expertise to help businesses scale, enhance competitiveness and strengthen financial resilience. In doing so, it contributes to a pipeline of more mature companies and a more robust corporate environment.

“As Europe looks to strengthen its competitiveness, attracting long-term private investment requires an environment where businesses can innovate, scale and grow with confidence,” says Pete Witte, EY Global Private Equity Lead Analyst.

How to sustain Europe’s position as the second largest PE market globally

As a growing number of markets strengthen their investment propositions and expand the opportunity set available to investors, competition for private capital is intensifying. Capital allocation decisions are becoming increasingly global, with investors comparing opportunities across jurisdictions based on risk-adjusted returns, regulatory certainty and the availability of attractive assets.

While total investments in Europe are expected to continue growing in absolute terms, surveyed funds expect to allocate 38% of their uncommitted capital to Europe over the next three years, compared with 45% over the previous five years. This does not reflect a deterioration in Europe's underlying investment fundamentals. Rather, it reflects the growing availability of investment opportunities across other regions and the increasingly competitive global market for private capital.