• Blue-chip US LPs look for alpha and diversification in Europe
• Sector, region and strategy specialist funds in demand
• 90% of buyout funds raised last year had clear specialist mandate

American GPs have long dominated global private equity, attracting top-tier LPs from both home and abroad. Now their European peers are poised to capture market share as the USA’s state pension plans and insurance firms show blooming interest in committing to highly specialist funds.

“A year ago, there would’ve been little interest from US LPs in European funds. Now, many are getting active support,” said Andy Lund, Houlihan Lokey’s global co-head of primary capital advisory.

He has worked on several European fundraises over the past 12 months that received exceptionally strong backing from US investors. For example, roughly 40% of the EUR 430m UK-based bd-capital raised for its second fund came from US LPs. It closed in March, comfortably above the EUR 350m target after less than 12 months in the market.

Even before the current backdrop of US uncertainty, marked by tariff pressures and trade war risks, upper-tier US LPs had already begun eyeing specialised European managers, several market participants told Mergermarket this week.

This is a function of the crowded US GP market as many sophisticated LPs are nearing or exceeding their North American allocation limits, meaning that they are looking at “strategic, rather than tactical” European bets, according to one investment consultant.

One deal-by-deal sponsor echoed this, saying that half of the sophisticated US LPs it is speaking to are strategically looking to diversify away from overweight US portfolios and into Europe.

US family offices, endowments, and foundations have remained selectively but consistently active in Europe. What is changing now, according to Lund and other sources, is a surge in appetite from state plans and blue-chip insurers looking for alpha and diversification abroad.

Connecticut Retirement Plans and Trust Funds (CRPTF), for example, has earmarked a chunk of its USD 2.6bn private equity budget to European small and mid-cap buyout and growth GPs, and is considering a USD 300m commitment to software-focused strategy Hg 4.

IK Partners X, which closed this month on EUR 3.3bn, collected a EUR 90m re-up from the Minnesota State Board of Investment (SBI) and a USD 125m ticket from The Teachers’ Retirement System of Louisiana (TRSL), marking one of the LP’s largest private equity plays this year.

Amid new trade tensions, Europe’s relative attractiveness could continue to grow, according to Lund. The UK, especially, may benefit from its modest trade surplus with the US, potentially securing a more favourable tariff structure than more export-focused European peers.

“Overall, as global dynamics shift, the UK and Europe could see greater cohesion and appeal for investment,” he said.

Despite this renewed interest in Europe from LPs, the general fundraising outlook remains bleak, as global market uncertainty has clouded last quarter’s glimmer of hope.

Over the past two years, capital has partly consolidated among the larger managers, with EUR 111bn raised across 98 funds in 2024, compared to EUR 94bn across 158 funds in 2021.

EQT expects this new environment’s successful funds to be large, diversified players and these niche, specialised strategies, the sponsor said in yesterday’s (April 16) earnings call.

Europe is fragmented yet diverse, with a patchwork of legal, cultural, and economic systems in contrast to the unified US market. While this complexity presents challenges, it has left the region less saturated and rich with niche opportunities for sharp investors.

One placement agent, however, emphasised the need to distinguish between a multi-regional and a pan-European approach, noting that the latter is becoming “out of fashion.”

Managers who previously pursued a London-based pan-European strategy have faced challenges, while those adopting a multi-regional model, focusing on select European markets and building deep local origination and M&A networks, are emerging as the real winners.

Interest is high in sector-focused, mid- and lower mid-market funds across continental Europe, including Scandinavia, the DACH region, France, and Southern Europe, said Leonard Umantz, who leads fund selection for US LPs at Rogers Investment Advisors.

Pollen Street Capital, for instance, a European mid-market sponsor focusing on financial services, recently extended the close of its already over-target EUR 1.1bn Fund V to give “top-tier” North American pension funds more time to finalise commitments. The fund now aims to exceed its original EUR 1bn target by 20-40% by mid-2025.

Of the roughly 80 buyout funds closed by European GPs in the last twelve months, around 90% had a clear sector, geography or strategy specialisation, Mergermarket data shows.

Specialised or localised ongoing fundraises in Europe include: Fondo Italiano Consolidamento e Crescita (FICC) II, with a focus on Italian high-growth tech companies; BV Healthcare Growth Innvierte I, looking at healthcare tech in Spain; and Alantra PEF IV, to invest in the French and Italian mid-markets.

Tech and healthcare opportunities remain top priorities for US investors, Lund said, and defence is also now back in the saddle amid the returning importance of sovereignty on both sides of the pond, another advisor said.

With sovereignty in mind, capital expenditure-heavy sectors such as defence, pharmaceuticals, and industrial capacity are likely to gain traction, marking a shift from the historical dominance of capex-light strategies, this source added.

Selecting the right managers, however, may pose challenges for US LPs. They have always maintained close ties to the USA’s private equity firms, but cracking the European mid-market requires having relationships at the local level to find the right opportunities.

“It’s a very dispersed market, and you’ll need a lot of local expertise to navigate that,” said one mid-market GP. “If you’re a big US LP, maybe you have those relationships, but not every LP has that reach with European GPs.”

Building out these networks can translate to an outsized impact on returns. This is especially possible if policy uncertainty in Washington, combined with German-led fiscal expansion in the EU further incentivises capital flows across the pond.