In Schroders’ new report, Private Equity Outlook Q4 2025, Nils Rode, chief investment officer for private markets at the firm, argued a confluence of factors are increasing the relative attractiveness of private equity.
With fundraising, deal activity and exits still below pre-2022 levels, he stated that fresh opportunities are emerging – particularly in less-efficient segments where capital is scarce.
While public markets are still buoyant due to anticipated US rate cuts, Rode characterised the investment horizon as clouded by risks such as tariff frictions, inflation, fiscal sustainability and geopolitical tensions.
Meanwhile, he said the boom in artificial intelligence has led to concerns about overvaluation and the potential for a boom-and-bust cycle.
“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,” Rode said.
As he pointed out, over the last 25 years, the asset class has historically shown its strongest relative outperformance during periods of increased public market volatility.
In addition, two sets of drivers are further strengthening the case for private equity, according to the firm.
First, ongoing technological advancements such as the AI revolution are creating structural tailwinds. Second, it argued that cyclical drivers are emerging due to lower transaction activity and subdued fundraising in recent years, in turn leading to more attractive entry valuations and better yield potential.
Small and mid-market focus
The firm’s strongest conviction lies in the small and mid-market segment – the “resilience engine” of private equity portfolios.
“Small and mid-market buyouts (for us, enterprise values less than $1 billion) continue to anchor portfolio resilience,” the report stated.
As it explained, these deals combine lower leverage, greater operational agility and more attractive entry valuations than large-cap buyouts. Schroders Capital data shows average purchase-price multiples around 7.7× EV/EBITDA, more than 40 per cent below large-cap equivalents, therefore offering significant headroom for value creation.
Moreover, it argued that small-mid buyouts tend to be more defensive in composition. Over four-fifths of transaction value in this segment is now service-oriented and portfolio companies typically generate the bulk of their revenues domestically, reducing exposure to trade shocks and global 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,” it stated.
GP-leds
Another bright spot, according to the firm, is the rise of continuation vehicles, or GP-led secondary structures. These kinds of structures allow managers to retain and further develop high-conviction portfolio companies beyond traditional holding periods.
The market for these vehicles has expanded roughly 27 per cent annually since 2013, according to Schroders, which forecasts it could quadruple over the next 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,” the firm stated.
Schroders’ own data shows that realised continuation investments exhibit more normally distributed returns, smaller tail-risk profiles and average hold periods 1.5 years shorter than traditional buyouts – a roughly 25 per cent faster time to liquidity.
This trend mirrors a broader market shift. As recently reported by InvestorDaily, the emergence of GP-led transactions has become a dominant force in private equity secondaries, providing liquidity and breathing new life into previously stagnant assets.
Early-stage venture capital
Finally, Schroders also highlighted opportunities in early-stage venture capital, which provides access to what it calls the “multipolar innovation” cycle.
Following the 2022–23 market correction, valuations have been reset. As the firm explained, this has created a fertile environment for early-stage start-up venture investments. For example, it pointed to renewed potential in biotechnology, which now offers more attractive entry valuations after weathering several years of risk aversion.
Alongside these areas, it advised disciplined diversification and focus on “quality density”, backing top-tier managers and high-potential portfolio companies.
At the same time, while optimism is returning, Schroders cautioned that exuberance in AI-linked sectors still warrants restraint.
“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,” Rode said.
