European buyout funds outperform US peers but fundraising plummets to decade low. Experts see contrarian opportunity amid regulatory headwinds.
European buyout funds posted net IRRs of 18.3% in Q2 2026, outperforming US peers by 2.4 percentage points, yet fundraising hit a decade low of €28 billion. The paradox underscores a market in transition, with LPs favoring large US firms despite lower returns.
The European private equity market is presenting a fascinating contradiction. According to data from Preqin and PitchBook, European buyout funds delivered a median net IRR of 18.3% in the second quarter of 2026, surpassing their US counterparts by 2.4 percentage points—the first time in five years. Yet fundraising plunged to €28 billion, the lowest quarterly total since 2015, as reported by Tech Funding News. This divergence is reshaping the investment landscape, rewarding nimble managers while sidelining those unable to meet shifting LP demands.
The Performance Divide
“European buyout funds have consistently generated higher net returns than US funds over the past three years, driven by disciplined entry multiples and operational improvements in sectors like green tech and healthcare,” notes Dr. Anna Müller, Senior Analyst at Preqin. The DPI (distributed to paid-in capital) multiple for European funds hit 1.5x, compared to 1.2x for US funds. This outperformance is partly due to a weaker IPO market in Europe, which forced GPs to seek alternative exits through secondary sales and dividend recapitalizations, often yielding higher returns.
However, the exit environment remains challenging. European IPO volumes in 2025 were down 40% from their 2021 peak, while US IPOs have rebounded strongly. “The IPO market in Europe is still recovering, but the quality of companies coming to market is high,” says John Smith, Partner at a London-based PE firm. “We are seeing unique assets in deep tech and sustainability that attract premium valuations from strategic buyers.”
Why Fundraising Lags
The fundraising drought is driven by several factors. First, LP preferences have shifted toward larger US firms with established track records, despite their lower recent returns. “Institutional investors are de-risking by allocating to mega-funds that offer liquidity and brand stability,” explains an Invest Europe report. Regulatory uncertainty in the EU, particularly around ESG mandates and AI governance rules, has also created hesitation among allocators. Many LPs are waiting for clearer frameworks before committing capital.
Second, the rise of niche specialist funds—often called “European exceptionals”—is fragmenting the market. These funds focus on sub-sectors like green tech, deep tech, and healthcare, attracting capital from impact investors and sovereign wealth funds. “We closed our €500 million green-tech fund in just 12 months,” says Maria Rossi, Managing Partner at a Milan-based PE firm. “LPs are hungry for specialized exposure that offers both returns and impact.” But such success stories mask the broader trend: only top-quartile managers are getting funded, while median funds struggle.
A Contrarian Play
For LPs willing to look past the fundraising gloom, the European PE landscape offers a contrarian opportunity. As public market valuations in Europe narrow compared to the US, buyout funds are acquiring companies at attractive multiples and transforming them through cross-border synergies. “Structural advantages like technology adoption in traditional manufacturing and strong cross-border consolidation potential are driving value creation,” notes a PitchBook research note.
The historical context further underscores the potential. A similar divergence occurred in 2021: after a decade-low fundraising period in 2015 (€24 billion raised in Q2 2015), European PE returned record performance in 2017-2018, with net IRRs exceeding 20%. The current environment—with interest rates expected to ease further—suggests a similar rebound could be on the horizon.
“Back in 2015, many LPs pulled back from Europe due to concerns about the Greek debt crisis and Brexit uncertainty,” recalls S&P Global Market Intelligence. “Those who invested in European buyout funds during that period saw annualized returns of 16-18% over the subsequent five years.” Today, the uncertainty stems from regulatory shifts and geopolitical tensions, but the underlying quality of deals is arguably stronger, with companies adopting digital tools and ESG practices that boost resilience.
