Private markets have entered a transition phase, influenced by changing macroeconomic conditions, more rigid financial environments and evolving investor expectations. After a decade, characterized by abundant liquidity, low interest rates and a strong expansion in valuations, the scenario has become more complex. While liquidity constraints, refinancing challenges and the potential gap between asset valuations and exit conditions may pose obstacles, private markets can continue to offer opportunities for attractive risk-adjusted returns. In this more challenging context, managers’ ability to identify differentiated transactions, apply rigorous underwriting criteria and leverage in-depth expertise across asset classes will play an increasingly important role.
In this context, Candriam is observing a reallocation of capital towards Europe. This trend is partly driven by growing uncertainty in the United States, affecting macroeconomic, political and market valuations. Europe is benefiting from relatively more attractive entry points and the perception of stronger risk-adjusted return opportunities in specific segments of private markets. In particular, investor interest is strengthening towards small and mid-cap strategies. This reflects a combination of factors, including a more challenging liquidity environment, a reduction in deal flow in the large-cap segment, increased competition for fewer assets and a relative shift towards segments that offer better value.
According to Candriam, the lower mid-market is distinguished by its large and fragmented opportunity set, lower exposure to global macroeconomic risks and typically more diversified exit paths, supported by a broader buyer universe and a stronger liquidity profile.
“Sector selectivity and diversification are increasingly important for navigating private assets. The unique characteristics of private markets require the expertise of highly specialized operators. For this reason, we access these markets through partnerships with boutiques focused on specific sub-segments and geographic areas. We collaborate with Tristan Capital Partners, a pan-European manager specializing in the real estate sector; with the European private equity firm Andera Partners; and with the European private debt specialist Kartesia”, says Emanuele Colombo, Deputy Head of Italian Branch and Head of Institutional Relations Italy of Candriam.
Prospects for European private equity
After a period of prolonged recalibration, European private equity enters 2026 with renewed confidence and a strengthening of deal momentum. According to Roland Berger’s 2026 European Private Equity Survey, three-quarters of industry participants expect higher M&A activity in 2026 than in 2025, thanks to greater availability of debt, greater pricing visibility and a robust pipeline of deferred exits and sales processes. A further encouraging sign is that mid-market funds in Europe raised a record €53 billion in 2025, up 35% year-on-year (PitchBook), reflecting sustained investor confidence in this market segment. The main growth drivers continue to be buy-and-build strategies, as Europe’s fragmented industrial sectors offer fertile ground for platform consolidation and the creation of genuine operational value. Geopolitical uncertainty, particularly regarding the evolution of the transatlantic trade relationship, and residual macroeconomic volatility remain key risks, reinforcing the importance of disciplined deal selection and sector expertise.
The lower mid-market, generally defined as the set of investments in companies with turnover between 50 and 500 million euros, occupies a structurally distinct and increasingly interesting position in the private equity landscape. The main differentiator is the evaluation. Industry data shows that average entry multiples in the lower mid-market are structurally lower than in larger deals. A second fundamental characteristic is the very nature of value creation. Transactions in the lower mid-market typically involve significantly lower leverage, with a significant share of transactions requiring little or no debt. Andera Partners focuses on companies where the value creation strategy is anchored in organic growth, external growth through acquisitions, internationalization and operational transformation, rather than financial engineering. A third distinctive trait is the strength of the alignment between investors and entrepreneurs: in the lower mid-market it is common to invest alongside founders or managing partners, often acting as their first institutional partner. This creates a real convergence of objectives, as opposed to the structured and competitive auction processes that typically characterize large-cap transactions.
Francesco Gonzaga, Partner of the MidCap team at Andera Partners, observeda: “What makes the lower mid-market so interesting is precisely what makes it more difficult to approach. It is an expanding reality, characterized by real entrepreneurial energy, a concrete need for a partner for the transformation and a long growth path still ahead of it. The relationship with the entrepreneur and with the management team is the core of our business, and such close collaboration simply does not exist in the upper mid-market and large-cap segments.”
Prospects for European private debt
The outlook for private debt in Europe for the coming months remains constructive, although there is now a need for greater selectivity. At the same time, the landscape is becoming more nuanced: borrower performance shows increasing differentiation across sectors and capital structures, reinforcing the importance of disciplined underwriting, active portfolio management and strong alignment with sponsors. Capital raising remains robust, with European private debt funds raising around €73 billion in 2025 according to PitchBook, an increase of nearly 40% year-on-year. This figure represents approximately one third of global commitments and underlines a continuous shift in capital allocation towards Europe. Yields, while moderating compared to recent peaks, remain attractive. Direct lending continues to offer a significant illiquidity premium compared to public markets, with historical high single-digit gross yields supported by still high base rates. Looking ahead, Kartesia expects the business to remain strong, supported by refinancing needs and sponsor-led transactions, with an increasing emphasis on defensive sectors and companies with strong cash flow visibility. Overall, European private debt remains well positioned to generate attractive risk-adjusted returns, although performance will increasingly depend on manager expertise and credit selection. Davide Maggioni, Investment Director of Kartesia for the Italian market, statesra: “In uncertain contexts, private debt plays a crucial role in ensuring the continuity of financing. Its flexibility and ability to adapt to the specific needs of companies make it a particularly effective tool for supporting businesses through the different phases of the cycle”.
Prospects for European real estate
According to Thibault Ancely, Managing Director, Investments at Tristan Capital Partners, “The real estate sector has gone through a difficult period due to rising interest rates, but the trend has now reversed. The macroeconomic outlook for Europe has improved, with inflation close to target levels, interest rates stabilized and fiscal stimulus arriving.” Property prices hit lows and the occupier market remained solid. Even the struggling office market is offering some opportunities, as the concentration of tenants in Class A buildings is generating solid growth in prime rents. For example, in Milan the vacancy rate is around 10%, but in its CBD (Central Business District) it is only 2-3%. The main asset classes we are currently focusing on are:
- residential, particularly affordable housing in countries with favorable government policies and market conditions, such as the United Kingdom and Spain, as well as the German multifamily residential sector.
- the hotel sector, specifically in the budget segment. The growing share of spending allocated to “experiences” and the resilience of cheaper hotels compared to luxury ones during economic slowdowns make this asset class very interesting. In June 2025, Tristan acquired the budget hotel brand easyHotel and now aims to expand the portfolio, particularly in Italy.
- innovation and digital infrastructures. We have invested in data centers and selected research and development (R&D) sites. Strong support for data centers is expected to last a long time, as they cannot be built fast enough to keep up with demand, while R&D sites benefit from increased defense spending.
- urban logistics. Tristan is very active in this space and we still see good opportunities; however, supply increased rapidly and e-commerce growth began to slow. We continue to evaluate new opportunities, but have reduced our allocation to the logistics sector.
