While public markets reach new highs, private equity continues to face an unprecedented four-year slump in fundraising, deal activity, and exits. Yet according to Nils Rode, Chief Investment Officer at Schroders Capital, this prolonged downturn may not be all bad news.
“Periods of weak fundraising often coincide with attractive entry points”, Rode notes. “In less crowded market segments, where valuations are lower and competition is reduced, long-term opportunities emerge.”
A persistent slump
Since its peak in 2021, private equity has experienced a sharp decline in fundraising, investment activity, and exits.
Brief signs of recovery in late 2024 and early 2025 – marked by increased exit activity –proved short-lived. A second uptick in the latter half of 2025 was similarly disrupted, this time by geopolitical tensions in the Middle East and rising energy prices. The recurring obstacle?
Macroeconomic uncertainty.
Market inequality and hidden value
Rode highlights that the current market adjustment is uneven. While global fundraising has fallen significantly from its 2021 peak, capital remains concentrated in the largest funds and transactions.
This leaves other segments – particularly small and mid-sized buyouts – relatively underserved. Companies valued under 1 billion dollars face less competition for deals, despite a much larger pool of potential targets.
This disparity is reflected in valuations. “Entry multiples for small and mid-sized transactions are about 40 percent lower than for large buyouts”, Rode explains. Compared to publicly listed small-cap companies, the gap widens to roughly 55 percent. For investors, this presents a more attractive starting point, especially in a market where high valuations elsewhere could pressure future returns.
Software and resilience
Even in sectors like software, where sentiment has soured, Rode sees value. “The sharp correction in public software valuations isn’t just about AI concerns; it’s also a rollback of previously inflated prices”, he says. “Even after the correction, public software valuations often remain above those in private equity.”
Smaller companies, often domestically focused, are less exposed to global trade disruptions or geopolitical shocks. Combined with lower debt ratios, this makes them more resilient during volatile periods.
Operational value over financial leverage
In this segment of the market, returns depend less on financial engineering and more on operational improvements. Fund managers focus on enhancing processes, strengthening management teams, and accelerating growth, both organically and through acquisitions. Sectors like healthcare, business services, and tech-enabled services stand out.
“Operational improvements can quickly lead to higher margins and profit growth”, Rode observes. “Historically, small and mid-sized buyouts have proven to be among the most consistent sources of returns in private equity, showing remarkable resilience during major market disruptions.”
The rise of the secondary market
With traditional exits remaining challenging, the secondary market is gaining prominence. Investor-initiated sales of fund stakes and continuation vehicles – where a fund manager retains a high-performing company in a new vehicle – are becoming increasingly common. “The global secondary market surpassed 200 billion dollars in 2025, a record”, Rode notes.
Continuation vehicles are particularly active in the lower mid-market, where operational improvements are still underway and further value creation is expected. For new investors, these transactions offer entry into companies with a proven operational track record, clearer growth paths, and often refreshed governance and capital structures.
“Once considered a niche, continuation investments are now a fully integrated part of the market”, Rode concludes.
