Powder to power: Turning £190bn into opportunity
Welcome to the second edition of Private Equity Pulse, our annual survey capturing insights from 550 private equity leaders across the globe. This year’s findings reveal a sharp focus on execution - adapting to Limited Partner (LP) demands, exploring innovative fund structures, and sharpening sector specialisms.
The UK private equity market held firm in 2025, with 1,722 deals worth £20.8bn completed. Despite a 9% drop in annual volumes, activity rebounded in H2 - up 5% from H1 - marking the busiest half-year since early 2022 (excluding the 2024 Capital Gains Tax surge).
*Updated dry powder estimate £190bn
Investors shifted focus to sectors driven by structural and geopolitical trends, such as Industrial Supplies, Aerospace & Defence, and Construction, alongside Asset Management, which benefited from regulatory and digital transformation opportunities.
While uncertainty from US tariffs and economic pressures led 82% of UK investors to pause deals, the market's resilience and adaptability provide optimism for 2026.
- 70% plan to increase investment levels.
- 28% think sector specialism is the most effective way to differentiate their fund.
- 52% expect longer holding periods.
- 58% plan to create value through digital and technology upgrades.
UK investment volume trends
UK investment value trends
An eye on the exit: How PE firms are unlocking value
After a challenging 2025 defined by valuation pressures, liquidity constraints, and slower exits, private equity is looking ahead with renewed optimism. UK firms expect operational improvements, buyer appetite, and valuation rebounds to drive successful exits this year. Digital transformation is a key focus, with 58% planning upgrades to boost portfolio performance and resilience.
While challenges like cautious buyers and sector-specific headwinds persist, innovative strategies such as vendor due diligence and continuation vehicles are reshaping the exit landscape. With operational excellence and strategic alignment leading the way, 2026 is set to deliver new opportunities for growth and investment.
Top drivers of successful exits in the next two years
Private Equity Pulse 2026
Where smart money is going: Top investment sectors
Globally, Technology stands out as a key growth sector, with 30.5% of investors identifying it as a top opportunity. UK investors, however, place greater emphasis on Financial Services (34%) and Professional Services (24%), highlighting confidence in areas like fintech, banking, and consultancy. Real Estate also remains a strong investment focus, attracting 22% of UK and 20% of global investors.
As 2026 unfolds, UK investors are well-positioned to capitalise on their strengths in Financial and Professional Services, driven by sustained demand for advisory and financial expertise. Globally, Technology continues to lead, while emerging sectors like Healthcare (16.5%) and ESG-related industries (~14%) present strong growth potential. With established sectors thriving and innovation unlocking new opportunities, the year ahead promises diverse prospects for investors.
Sectors driving investment opportunities
Debt markets: Lower costs, fierce competition
In 2025, falling interest rates drove competition in private credit markets, lowering costs and offering borrower-friendly terms for high-quality assets. Lenders, however, stayed disciplined, prioritising strong PE track records and diligence.
Looking to 2026, competition among lenders is set to intensify, keeping costs low and terms flexible. While opportunities for favourable financing grow, disciplined underwriting means robust diligence remains key.
Nine trends that will shape PE in 2026
Private equity is poised for transformation as nine pivotal trends redefine the landscape in 2026. Here’s what to watch:
- Innovations disrupting traditional models including real-time portfolio monitoring, AI-driven deal sourcing and retail investor platforms.
- Cash-flow plus people will be king.
- US funds expand further into Europe.
- Regulated assets attract premium valuations.
- ESG integration gains prominence.
- Slow and steady (and measured) will win the race.
- IPOs hint at a cautious comeback.
- A return to competitive financing processes.
- Private equity and lenders will embrace the defence sector.
