Benjamin Alt, Head of Global Private Equity Portfolios, Schroders
Resilience amid geopolitical uncertainty
Private equity has often been perceived as relatively insulated from geopolitical swings. While private assets are illiquid and managed over long horizons, this does not make them completely immune to global events.
Ultimately, both public and private equity investors are owners of companies. Private equity, however, is illiquid by nature. Investors are in the deal for longer and cannot simply trade in and out or adjust overnight. For this reason, private equity investors must develop a view that is more mid- to long-term.
Coupled with this, the increasing frequency and intensity of macroeconomic events since the COVID-19 pandemic have prompted the private equity industry to adopt less cyclical business models and strive for greater predictability. This means business models with more recurring revenues, less project business, high margins, high cash convergence, and less customer churn. Essentially, as private equity investors, we have almost been forced to reduce bottom-up risk in our company analysis to compensate for the macro risk we are facing.
Cautious optimism for 2026
At the end of 2025, private equity markets showed renewed vigour — primarily in dealmaking and exit activity. This momentum continued into early 2026, particularly in the small‑ to mid-market buyout segment, where there are more exit routes and opportunities to sell companies.
Despite this, we remain cautiously optimistic about 2026. The outlook depends heavily on whether fresh geopolitical shocks emerge. Uncertainty remains the industry’s biggest killer – it mutes exuberance and causes investors to postpone exits and deal activity.
Big isn’t always better
Amid this measured optimism, the opportunity set within small and mid-market buyouts is vast. In the US alone, 87% of companies valued at over $100 million are private[1]. As delistings continue to rise, a universe of overlooked, high-quality, founder-led businesses emerges.
Approximately 60 to 70%of our private equity deal flow at Schroders involves acquiring companies directly from entrepreneurs or families. Sourcing businesses this way – as opposed to a more traditional auction model – tends to offer attractive entry valuations and high transformation potential.
Typically, we look for companies that drive innovation and change – and this is exactly what you find in the small- to mid-market buyout range. But accessing these opportunities requires deep industry knowledge, strong relationships, and proactive sourcing, rather than waiting for deal lists from investment banks to fall into your lap.
Where are the pockets of opportunity?
Healthcare
Contributing roughly 30% of Schroders’ deal activity in the space since inception, healthcare has been our most successful sector. While it experienced a sharp correction in 2022/2023, due to wage inflation and staffing shortages affecting valuations, the long-term growth drivers remain.
Software and B2B technology
Digital transformation remains a powerful driver, and this doesn’t even have to extend as far as artificial intelligence (AI) integration. A surprising number of small‑ to mid-cap companies in the $50 to $100 million enterprise range still lack modern enterprise resource planning (ERP) systems and basic digital infrastructure. This is exactly part of the transformational element that we look at improving in those companies.
AI and the tech ecosystem
While valuations in large language models (LLMs) have soared, our investment focus is on seed and early‑stage venture. We believe valuations are more stable here than in late-stage, pre-IPO investments where substantial volatility occurs.
We see value in investing in the supporting ecosystem—companies that provide essential tooling, infrastructure and services across the AI value chain. For these businesses, it’s not important who the winner is at the end of AI race as they can work with all of them as a service provider.
Continuation funds: Doubling down on winners
One of the most significant evolutions in private equity over the last decade is the rise of GP‑led continuation deals. Previously, investors were limited to holding a company for a set period of time before having to exit to unlock liquidity. Today, around 50% of the secondary market (worth approximately $200 billion annually) consists of continuation vehicles.
These structures allow managers to continue the journey with a company that historically had a closed-end fund structure. They provide a good liquidity solution for people who want out, as well as allowing investors to continue if they believe in the story.
With an exceptionally low historic loss ratio of around 1% (compared to 10% on the buyout side), continuation funds offer a compelling way to retain exposure to high-performing companies while reducing risk.
The risk of AI for private equity prospects
There is a risk that AI could eventually replace certain specialised software and services – a large part of the small- to mid-market buyout range. However, replacement is unlikely to be immediate as many of these companies value human problem‑solving, customisation and industry-specific insight – elements that may not be fully automated in the short term.
Over the longer horizon, AI will also create new categories of investment, business models and growth opportunities within private equity.
A road, diversified and opportunity‑rich 2026
Ultimately, despite global uncertainty, the entrepreneurial energy driving private markets remains strong. Small and mid‑market buyouts offer access to future champions and innovation drivers, but specialisation and market discipline remain critical. Additionally, diversification across sectors and geographies is essential for a robust portfolio.
While risks will continue to evolve and shift, there will always be people building exceptional businesses — and private equity is uniquely positioned to support and scale them.
ENDS
[1] Source: OECD, 2019.
