This article is sponsored by Schroders Capital
It can be hard to make sense of global markets at the moment. On one hand, the investment environment appears benign and expectations of further rate cuts in the US have fuelled investor optimism. This has driven public equities indices in many regions to reach or approach record highs.
On the other hand, risks are forming on the investment horizon, maintaining the volatility. Concerns centre on the ripple effects of tariffs, uncertainty around central bank policies and inflationary pressures, questions of fiscal sustainability, and still-elevated geopolitical risks stemming from ongoing conflicts.
Even the recent valuation exuberance, especially around growth areas such as artificial intelligence, adds to the growing list of risks, given the historical pattern of boom-and-bust valuation cycles following major technological breakthroughs.
Diversification, resilience and return opportunities
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.
Our research in performance during periods of crisis over the past 25 years shows that the asset class – particularly in the lower-mid-market segment – has historically delivered its strongest relative outperformance during periods of heightened public market volatility.
At the same time, private equity is currently benefiting from a convergence of cyclical and structural tailwinds that are catalysing compelling opportunities for return generation and portfolio diversification.
Structural tailwinds include the technological revolution, which is reshaping industries and capital flows – although, as we will discuss in more detail later, excitement around AI raises some potential red flags related to later-stage venture investments targeting the space.
Cyclical drivers stem from the lower transaction activity and subdued fundraising over recent years. This has created favourable capital supply-and-demand dynamics that are supporting more attractive entry valuations and improved yield potential.
Together, these factors increase the relative attractiveness of private equity, strengthening resilience and creating a more solid foundation for long-term growth. 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.
Small is (still) beautiful
Overall, then, private equity remains in a period of recalibration, as fundraising, deal activity and exits continue to lag pre-2022 levels. Slower capital flows, fewer exit routes and prolonged holding periods have coincided with higher macro volatility, tighter financial conditions and policy uncertainty.
Yet these dynamics are also creating a more favourable environment for disciplined investors. Reduced competition, especially in less efficient segments of the market, wider pricing dispersion and increased manager selectivity are laying the groundwork for stronger vintages ahead.
We see the most compelling opportunities emerging through three complementary levers that help investors navigate today’s challenges: local champions, transformative growth and multi-polar innovation.
Local champions are businesses with predominantly domestic revenue bases, reducing exposure to trade frictions, tariff uncertainty and shifting supply chains. Their earnings resilience and control over local value chains can help buffer portfolios against geopolitical shocks.
Meanwhile, transformative growth involves investing in companies where complexity, operational improvement, or innovation create controllable value-creation paths that can offset broader market turbulence. In a more selective environment, operational value-add has become the key differentiator of returns.
Finally, multi-polar innovation captures the expanding global technology landscape. Breakthrough growth is now distributed across multiple hubs spanning the US, Europe, China, India and the broader Asia-Pacific, diversifying opportunity and reducing reliance on single-market cycles.
These themes converge across three strategy areas: small- and mid-sized buyouts, continuation investments and selective early-stage venture.
Small and mid-sized buyouts: the resilience engine
Small and mid-market buyouts (for us, enterprise values less than $1 billion) continue to anchor portfolio resilience. They combine more attractive entry valuations, lower leverage and greater operational agility than large-cap deals. Industry and Schroders Capital data show average purchase price multiples remain around 7.7x EV/EBITDA – over 40 percent below large-cap equivalents, creating significant headroom for value creation.
This segment’s defensive characteristics are further reinforced by its structure: over four-fifths of transaction value across private equity buyouts, the majority of which are small and mid-market deals, is now service-orientated – and portfolio companies typically generate a large share of revenues domestically.
This focus on essential, localised services reduces exposure to global trade and 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.
CVs: extending the value-creation runway
Continuation vehicles have become an increasingly important tool for private equity managers to extend ownership of high-conviction assets beyond traditional holding periods. By enabling managers to retain and further develop portfolio companies through their next stage of growth, these vehicles align long-term value creation with investor liquidity preferences.
The market for continuation strategies has expanded at roughly 27 percent annually since 2013, reflecting both cyclical and structural demand for longer-duration investments – and our forecasts show the segment could quadruple over the coming 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 – around 18 months shorter than conventional buyouts.
For investors, the appeal of continuation investments centres around the potential to generate strong, but more predictable, return profiles and faster liquidity. Schroders Capital data on realised continuation investments suggests that these deals have more normally distributed returns and a smaller tail-risk profile compared with traditional buyouts – and that hold periods are 1.5 years shorter on average, equating to a 25 percent faster time to liquidity.
Early-stage venture: capturing distributed innovation
Early-stage venture capital offers exposure to the global, multi-polar innovation cycle, where technological breakthroughs are emerging from diverse regions and ecosystems. We believe that, in today’s environment, venture capital matters more than ever, with its stellar, long-term return opportunities highly valuable at a time of uncertainty and volatility.
As of 2025, we are in the early stages of a new innovation upswing following the correction of 2022-23; the ‘boom-bust’ cycle has reset the playing field advantageously for new investments. Specifically, we believe the best opportunities continue to be found in the earlier stages of the start-up venture lifecycle. Valuations for late-stage rounds have come down significantly from 2021 highs, but are once again rising – and exuberance in particular segments such as AI warrants caution.
Beyond early-stage exposure, our long-term venture playbook focuses on ‘quality density’; that is backing top-tier managers and doubling down on high-potential portfolio companies, as well as smart diversification across managers, geographies and sectors, and disciplined investing across cycles.
