Europe’s private equity (PE), venture capital and infrastructure sectors are showing renewed confidence, according to the 2025 Pan-European Private Equity Market Sentiment Report published by Invest Europe and global consultancy Arthur D. Little.
The sixth annual study, based on insights from over 360 fund managers (GPs) and investors (LPs), combines sentiment analysis with market data from the first half of 2025. Despite a turbulent geopolitical and economic environment, notably driven by US tariff policies, the industry is cautiously optimistic about the year ahead.
Market slowdown meets growing confidence
Private equity fundraising reached 54 billion euros in H1 2025, down 20 percent year-on-year, while investments in European companies fell 31 percent to 49 billion euros. Divestments saw the sharpest decline, dropping 46 percent to 13 billion euros.
Yet optimism is returning. Nearly half of GPs (45%) expect fundraising to grow over the next 12 months, while 28 percent of LPs anticipate improvement over a three-year horizon. Few expect a further downturn.
Europe benefits from US policy shifts
Trade volatility under the US administration is reshaping global capital flows. 40 percent of LPs plan to allocate more capital to Europe, while 38 percent intend to reduce exposure to US markets. This pivot is reinforcing Europe’s position as a more stable investment destination amid global uncertainty.
Defense, AI and Deep Tech in the Spotlight
Defense has emerged as the top growth sector for private equity, with 74 percent of GPs expecting greater activity – up from 62 percent last year – driven by increased European defense spending and new geopolitical priorities.
Deep tech and artificial intelligence (AI) continue to attract strong investor interest, with two-thirds of GPs forecasting higher investments. Conversely, traditional sectors such as automotive, consumer goods, and retail are expected to see declines in activity.
AI transforms PE operations
Beyond investment targets, AI is revolutionizing how private equity firms operate. 94 percent of GPs and 61 percent of LPs expect to expand AI use within their organizations – from deal sourcing to portfolio monitoring. At the same time, geopolitical risk management is becoming a top operational focus, cited by over 80 percent of GPs.
ESG and DEI plateau
After years of focus, attention to Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) has stabilized. Only about a quarter of respondents expect to increase emphasis in these areas, suggesting that best practices are now well integrated into investment processes.
A sector adapting to change
“The past year has tested the private equity industry’s resilience”, says Jonas Fagerlund, Partner at Arthur D. Little. “Twelve months ago, uncertainty around the new US administration created understandable caution. That caution proved justified, but confidence is returning, with investors and fund managers adapting to disruption and focusing on opportunity.”
As 2026 approaches, the European private equity landscape appears defined by strategic agility, technological adoption, and a shift toward defense and innovation-led growth – positioning the continent for renewed momentum amid global volatility.
