Private equity investment in the UK is showing renewed signs of life, as dealmakers adapt to higher interest rates, tighter lending conditions and growing pressure from investors for more control and lower fees.
While mega-buyouts remain subdued, a quieter but significant shift is under way: the rise of co-investments in private markets.
After two years of muted activity, UK-focused private equity firms are increasingly targeting mid-market opportunities, platform acquisitions and bolt-on deals, particularly in sectors offering resilient cash flows such as healthcare, business services, technology infrastructure and energy transition. According to industry figures, deal volumes are stabilising, even as valuations remain below the peaks of 2021.
Fund managers say the market is not short of capital — often described as “dry powder” — but that deployment strategies have changed. With debt more expensive and exit routes less predictable, firms are structuring deals more cautiously and leaning on co-investments to spread risk and align interests.
Co-investments allow institutional investors, such as pension funds, insurers and family offices, to invest directly alongside private equity sponsors in individual transactions, often on more favourable fee terms. For investors, the appeal is twofold: lower costs and greater transparency. For fund managers, co-investments offer a way to execute larger or more complex deals without overconcentrating risk within a single fund.
“Co-investment has moved from being a niche option to a core part of private market strategies,” said one London-based private equity partner. “It allows sponsors to be more selective while still backing high-quality assets.”
The trend is particularly pronounced in private credit-backed transactions, infrastructure and growth equity, where capital requirements can be substantial and long-term horizons suit 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 mobilisation of UK institutional capital into private markets. Recent reforms to pension fund rules and the creation of long-term asset 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 visibility on interest rates, easing inflation and a gradual reopening of exit markets, including secondary buyouts and selective IPOs, are expected to support dealmaking through 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 are commanding premium valuations, even as weaker businesses struggle to attract interest.
For UK businesses seeking investment, the message is clear: private equity remains open for business, but scrutiny is higher and structures are more flexible. For investors, co-investments are no longer an add-on, they are becoming central to how capital is deployed across private markets.
As the cycle matures, private equity’s ability to adapt its models may prove just as important as the capital it brings to the table.