As we sail toward the second half of 2025, the cross-border private equity financing landscape is being reshaped by a confluence of economic shifts, regulatory recalibrations, and evolving market sentiments. For investors, understanding these dynamics is not just beneficial—it’s imperative.
The Interest Rate Waltz: A Choreography of Deals
Investment bankers are tuning their instruments, anticipating a symphony of deals as interest rates take a bow. With the European Central Bank signaling potential rate cuts, the stage is set for a surge in mergers and acquisitions (M&A). Lower borrowing costs traditionally lubricate the gears of deal-making, and 2025 appears to be no exception. This expected decline in rates is poised to invigorate private equity activity, offering a fertile ground for cross-border transactions. This shift is particularly significant for sectors like technology and healthcare, where valuations have been volatile but remain attractive. At the time of writing, global stock markets have seen a significant swing following global tariff announcements and even those may present take-private opportunities for the right investors using the right currencies.
Fundraising: A Tale of Two Realities
The private equity fundraising narrative is bifurcated. On one hand, European private equity fundraising reached €118 billion in the first half of 2024, suggesting a potential record year. However, signs indicate a slowdown in the latter half, with fewer mega funds in the market. This deceleration underscores the importance for firms to differentiate themselves and demonstrate unique value propositions to attract capital in a more discerning environment. Continuation vehicles (CVs) continue their emerging as a strategic tool for PE sponsors, facilitating the retention of high-performing assets while driving LP liquidity in a tight exit market for the types of cross-border assets that have nuanced management needs.
Regulatory Crosswinds: Navigating New Restrictions
Regulatory landscapes are shifting, with bodies like the Committee on Foreign Investment in the United States (CFIUS) intensifying scrutiny on foreign investments and equally the UK CMA paying increased attention to transactions. Private equity firms must now conduct meticulous due diligence on limited partners and third-party ties. The introduction of outbound investment programs further complicates cross-border deals, necessitating a keen understanding of compliance requirements to avoid transactional turbulence.
The China Conundrum: Rethinking Asian Strategies
China’s allure is dimming in the eyes of some investors. Blackstone’s recent move to grant the Minnesota State Board of Investment an option to opt out of China investments made by Blackstone’s latest Asia-Pacific fund could reflect growing apprehensions. Factors such as economic deceleration, an unpredictable stock market, and stringent policies from both Beijing and Washington are prompting private equity players to reassess their Asian portfolios and consider diversifying into other burgeoning markets.
Nearshoring Nuances: The Global Standoff
The trend of nearshoring spurred by U.S.-China trade tensions, faces headwinds due to newly imposed tariffs. While places like Mexico offer proximity and cost advantages making them attractive, the unpredictability of trade policies is causing some private equity firms to hit the brakes on investments. This scenario underscores the necessity for investors to remain agile, adapting strategies to the ever-changing tapestry of international trade relations.
Exit Strategies: The European Puzzle
European private equity firms are encountering hurdles in executing exits, particularly with larger deals. The caution exhibited by firms opting against acquiring larger businesses due to resale concerns, highlights the complexities of the current market. This environment calls for innovative exit strategies and a reevaluation of portfolio company scalability to ensure liquidity pathways remain viable. The strong feature pervading the market is that the most creative thinkers and agile participants will again drive forward market activity, but also likely benefit from the caution shown by so many others.
Sectoral Shifts: The Rise of Infrastructure and Private Debt
Europe’s alternative asset managers are experiencing a tilt in AUM towards infrastructure and private debt. With infrastructure comprising 18.9% and private debt 15.3% of Europe’s private capital AUM, these sectors offer diversification even within the subsets of one another. We have already seen asset managers start to consider infrastructure assets of a type which are not classically affiliated with the infrastructure world. We can expect to see more infra-driven transaction volume given the theses around stable, long-term returns amidst market volatility.
Conclusion: Steering Through the Cross-Border Currents
While the first half of 2025 has been characterized by near-term paralysis of decision—making owing to macroeconomic events, the latter half of 2025 presents a mosaic of opportunities and challenges for cross-border private equity financing. Success hinges on each firm’s ability to adeptly navigate interest rate fluctuations, regulatory mazes, and geopolitical shifts. By staying attuned to these trends and maintaining strategic flexibility, private equity professionals can chart a course through the complexities of the global financial seascape, turning potential obstacles into avenues for growth.
By Aymen Mahmoud, London Managing Partner and European Head of Finance at US law firm McDermott, Will and Emery.
