Arthur D. Little: H1 2026 Private Capital Fundraising Strengthens While Market Sentiment Highlights Investor Shift to Europe over US and Asia

H1 fundraising up 6% year-on-year as 43% of LPs see geopolitical volatility favouring European funds AI usage dominates industry attention, defence leads target investment themes

Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, today released ‘Investing in Europe: Private Equity Activity H1 2026’ and ‘The Insight: State of the European Private Equity Industry 2026’, an annual market sentiment report published jointly with global management consultancy Arthur D. Little (ADL). Together, these show increased fundraising for European private equity and venture capital versus the same period last year, stronger investor allocation expectations for Europe, and declining appetite for the US and Asia. The sentiment report also demonstrates how AI is reshaping the industry and portfolio companies, while defence-related themes are topping GPs’ target investments.

GPs (General Partners/fund managers of PE firms) and LPs (Limited Partners of PE firms/fund investors) are reacting and adapting to another year of geopolitical unpredictability and market volatility marked by Middle East conflict, energy supply shocks, rising interest rates, and ongoing trade uncertainty. The Invest Europe/ADL sentiment survey highlighted how this is driving three trends:

• Greater focus on Europe. Forty-three per cent of LPs expect increased allocations to Europe over the next three years because of Washington’s trade stance, compared with 30% who expect lower allocations to the US. Similarly, 29% expect higher allocations to Europe as a result of conflict in the Gulf.
• Greater focus on defence. Reflecting the geopolitical backdrop, 75% of GPs expect higher levels of investment in defence, making it the top target investment sector. Fifty-three per cent of GPs also see more investment in aerospace, a theme that has risen rapidly up managers’ investment agendas. Deeptech & AI remains the second most popular sector, with 62% of GPs seeing increased investment, while energy & utilities has risen to fourth as managers target investments linked to the demands of the AI buildout in Europe.
• Greater focus on AI. AI dominates managers’ focus as they integrate the technology into their own processes and at portfolio companies, while also analysing the risks to target businesses. Ninety-six per cent of GPs see attention to work practices supported by AI as having the largest impact on operations over the next 12 months, well ahead of geopolitical risk. Furthermore, 82% of GPs say AI will be the biggest focus for their teams in the coming year, ahead of exits, while usage of AI is the most important improvement initiative taking place at portfolio companies, according to almost two-thirds of respondents. The impact of AI is also the most important due diligence consideration.

Market data from the Private Equity Activity H1 2026 reportshows greater fundraising but lower investments:

• Private equity and venture capital fundraising hit €68 billion in Europe in the first half, up 6% on revised data for the same period last year and ahead of the €54 billion announced this time last year. Buyout fundraising strengthened to €54 billion versus €42 billion last year, with significant growth in the France & Benelux and DACH regions. At €7.9 billion, VC fundraising was in line with H1 2025, again driven by strong performance for funds from France & Benelux. Final fundraising figures are expected to rise as more data is reported.
• A total of €43 billion was invested in the first half, below figures reported this time last year and down 35% year-on-year versus revised data, driven by softness in buyout activity. There were notable bright spots as H1 VC investment hit a half-year record of €11.5 billion, 11% above the revised data for the first half of 2025, highlighting increased funding round sizes as well as strong appetite for European tech and biotech innovation. Divestments (measured at investment cost) were down to €13 billion, in line with figures reported this time last year. As with fundraising, final figures for H1 are expected to increase as more data is reported.

In addition to core data, the Private Equity Activity H1 2026 report tracks major themes shaping activity, including continuation vehicles (CVs) and investment in defence and deeptech. Preliminary figures suggest cooling down of continuation fund activity, with fundraising down to €2.4 billion, down 78% from the record high €11.3 billion of H1 2025; similarly, continuation fund investments dropped to €1.3 billion, down 65% year-on-year. The defence sector is continuing on its growth trajectory, with investments into the sector totalling €2.7 billion, more than double that of H1 2025. And investments into deeptech companies hit €8.5 billion in H1 2026, a 35% increase on H1 2025, driven by an upswing in investment into the UK & Ireland.

The Pan-European Market Sentiment Survey 2026 takes the pulse of key industry issues such as CVs. While many expect their use to increase over the next 12 months, over half of GPs are extending or considering extensions to holding periods for current or successor funds, addressing some of the time pressures leading to CV creation. Finally, the survey looks at long-term views on the future of private equity and venture capital, with 69% of GPs saying the industry is already consolidating, while most of the remainder believe consolidation will happen soon.

Eric de Montgolfier, CEO of Invest Europe, commented:

• “Against a complex and unpredictable global backdrop, Europe’s strength, stability and predictability – across trade, institutional, and regulatory levels – are actively drawing capital towards European private markets and its opportunities. In the hands of experienced managers, that capital is flowing into companies that support Europe’s strategic agenda, fuel innovation, and boost competitiveness, further strengthening Europe and its appeal to global investors.”

Jonas Fagerlund, Partner at Arthur D. Little, said:

• “For an industry with a long-term view, private equity and venture capital can shift focus rapidly to capture opportunities or manage threats. AI capabilities have moved from ‘nice to have’ to ‘must have’ and are transforming GP operations and the companies they support. The ability to innovate and adapt, with the support of LPs, stands the industry in good stead for the future.”

To read ‘The Insight: State of the European Private Equity Industry 2026’, please click here.

To read the ‘Invest Europe’s Private Equity Activity H1 2026’ please click here.

For further information, please visit www.adlittle.com

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