(16 December 2024 – United Kingdom) Eighty percent of UK Private Equity (PE) firms are projecting 35% asset growth over the next 1-3 years, with Small Cap funds anticipated to lead at an impressive 42% growth.
This growth trajectory is supported by favourable fundraising conditions and a steady supply of assets, boosting PE and M&A activity. Currently, the average PE deal size sits at £363.5 million across the market, underscoring a robust deal flow.
Yet, even with strong asset performance and renewed M&A optimism, PE firms face hurdles in deploying capital over the next year. Key challenges include high investor expectations, particularly around hurdle rates, along with regulatory shifts, sovereign risk, and intense competition for technology investments in areas such as AI—particularly affecting Mid and Small Cap funds.
Pension schemes remain essential capital sources for PE, especially those managing assets above £10 billion. To unlock greater pension fund investment, however, PE firms must prioritise educating trustees on PE’s portfolio benefits. Increased inflow from pension funds is achievable, but it demands consistent, direct engagement with schemes to build familiarity and broaden their investment outlook. A deeper understanding of trustee investment experience and a proactive approach to pension fund alignment and risk appetite are critical for PE fundraising success.
Martin Smith, East & Partners’ Global Head of Markets Analysis commented: “The analysis shows that UK PE firms are geared for strong growth following a period of subdued deal flow. Given access to DB scheme surpluses is a high priority for UK PE fund managers, deeper and more frequent direct engagement between pension schemes and PE is crucial to stimulate further growth in 2025 and beyond”.
To capitalise on these promising growth opportunities, UK PE firms need to act decisively. Building stronger, trust-based relationships with pension schemes, actively engaging with trustees, and effectively communicating PE’s unique portfolio advantages will be crucial for securing increased investment. Now is the time for PE firms to strengthen their positioning, drive innovation in asset deployment, and unlock the full potential of their unallocated capital for sustained growth.
*All insights are from the research study conducted by East & Partners for the Mercer UK Private Equity Review earlier in 2024.
The full report can be read here: Unlocking Value Opportunities from UK Pension Funds