Private equity investing in the UK is showing new signs of life as dealmakers adapt to higher interest rates, tighter credit conditions and growing pressure from investors for more control and lower fees.
While mega-buyouts remain muted, a quieter but significant change is afoot: the rise of co-investments in private markets.
After two years of muted activity, UK-focused private equity firms are increasingly targeting middle market opportunities, platform acquisitions and add-on deals, particularly in sectors with stable cash flows such as healthcare, business services, technology infrastructure and energy transition. According to industry figures, transaction volumes are stabilizing, although valuations remain below 2021 highs.
Fund managers say the market is not short of capital – often described as “dry powder” – but that deployment strategies have changed. As debt becomes more expensive and exit paths less predictable, companies are structuring deals more carefully and relying on co-investments to spread risk and align interests.
Co-investments enable institutional investors such as pension funds, insurance companies and family offices to invest directly alongside private equity sponsors in individual transactions, often at more favorable fee conditions. The appeal for investors is twofold: lower costs and greater transparency. For fund managers, co-investments provide a way to conduct larger or more complex deals without concentrating too much risk in a single fund.
“Co-investment has evolved from a niche option to a core part of private market strategies,” said a London-based private equity partner. “It allows sponsors to be more selective while supporting high-quality assets.”
The trend is particularly pronounced in private debt-backed transactions, infrastructure and growth capital, where capital requirements can be significant and long-term investment horizons are suitable for institutional investors. UK pension schemes, under pressure to boost returns while supporting domestic investment, are increasingly active participants.
This shift comes as policymakers continue to push for greater mobilization of the UK’s institutional capital into private markets. Recent reforms to pension fund rules and the creation of long-term investment vehicles have made it easier for large pools of capital to access private equity and co-investment opportunities.
Despite the cautious tone, executives managing private equity investments remain optimistic about the medium-term outlook. Improved interest rate visibility, easing inflation and a gradual reopening of exit markets, including secondary buyouts and selective IPOs, are expected to support deal execution in the second half of the year.
However, competition for the best assets remains intense. Assets with strong management teams, pricing power and clear growth narratives command premium valuations, even as weaker companies struggle to attract interest.
For UK companies seeking investment, the message is clear: private equity remains open to businesses, but control is tighter and structures are more flexible. For investors, co-investments are no longer an add-on, but are becoming a core part of how capital is deployed in private markets.
As the cycle matures, private equity’s ability to adapt its models could prove to be as important as the capital it brings in.
