Exit Stage Europe, Enter ESG: What’s Moving PE This Week

Good morning, ! This week we’re covering the European Private Equity landscape, tech mega round deals, ESG importance in the compliance sector, and S&P $1.8B private markets data investment.

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MONTHLY DATA DIVE

Europe’s Private Equity Pivot: Quality Over Quantity

After years of champagne-fueled dealmaking, European private equity is in bunker mode. Year-to-date 2025, deal value has plunged to €222.1B—less than half the 2021 peak—as rising borrowing costs, geopolitical uncertainty, and shrinking exit options force sponsors to rethink what “value creation” really means. The playbook has flipped: it's no longer about size, but strategic assets and operational elbow grease. IT and Healthcare remain golden children, thanks to recurring revenues and digital scalability, while Energy stays bulky but capital-hungry. Expect the next wave of PE glory to come not from exuberance, but from disciplined execution—and patience.

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TREND OF THE WEEK

The AI Cost-Cutter Boom

Private equity’s latest love affair isn’t with another LLM — it’s with the plumbers behind the AI gold rush. Seven AI inference and performance optimization firms raised mega-rounds in September, with over 70% already profitable. Baseten grew revenue 10x in a year, Rebellions expects $68M in 2025, and Invisible hit $134M in 2024. Their clients — Cohere, Writer, OpenEvidence — are paying up to lower compute bills. Meanwhile, crypto players like Kraken and Fnality are finally finding religion in regulation (and banking partners), while early-stage investors chase verticalized AI across robotics and healthcare. Translation: capital is flowing to firms that either make AI cheaper, make crypto legal, or make niche AI possible — all before proving they work. (More)

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LIQUIDITY CORNER

The Leverage Gap Between PE and Private Credit

Fund-level leverage is still the exception in private equity—but it’s standard operating procedure in private credit.

New data shows 70% of semiliquid private credit funds employ fund-level leverage, compared to just 30% in private equity. The average leverage ratio? 20.8% for private credit, vs. only 4.3% for PE.

This divergence is structural. Private credit managers use leverage to amplify yield, tapping fund-level borrowing to boost returns in yield-driven strategies. PE funds, by contrast, tend to reserve leverage for deal-level financing or occasional liquidity management—such as funding redemptions or covering short-term gaps.

But as the liquidity squeeze deepens across private markets, the temptation to mimic credit’s playbook may rise. Fund-level leverage offers flexibility, but it also adds complexity and risk—especially in longer-duration, less-liquid PE strategies.

Bottom line: The gap in leverage reflects not just different asset classes, but different risk appetites and liquidity profiles. With distributions slowing and fundraising under pressure, how GPs choose to use—or resist—leverage will be a key signal to watch. (More)

DEAL OF THE WEEK

S&P Global’s $1.8B Data Power Play

S&P Global is doubling down on the private markets data boom, acquiring With Intelligence from Motive Partners for $1.8 billion. The deal gives S&P access to 350,000 deals, 70,000 funds, and a direct line into how LPs and GPs think. With Intelligence’s $130 million in 2025 revenue and high-teens growth make it a rare “data meets distribution” combo. The move effectively transforms S&P into a Bloomberg Terminal for alternatives, just as private markets march toward $40 trillion AUM by decade’s end. The message: ratings and benchmarks are nice, but in this market, information asymmetry is the new alpha. (More)

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PRIVATE CREDIT

Private Credit: Sharpe Objects in the Rearview

Over the last decade, Private Credit hasn’t just held its own—it’s outpaced nearly everything else in risk-adjusted returns, with strong fundamentals and drivers. With a Sharpe ratio of 1.2, it tops the charts ahead of Private Equity (1.0), High-Yield Bonds (0.6), and Venture Capital (0.3). The kicker? It performs even better when rates rise. In seven rate-hike cycles since 2008, direct lending averaged 11.6%—two points above long-term trends. Even during the Fed’s 2024 pivot, it pulled 10.5%, beating public comparables. Add in floating-rate structures, senior secured positions, and lower historical credit losses (0.4%), and it’s clear: Private Credit isn’t a yield alternative. It’s a portfolio cornerstone. (More)

MICROSURVEY

MACROVIEW

Scott Bessent’s $20 Billion Bet on Argentina

Argentina just pulled off something that hasn't happened in over 100 years: a fiscal surplus. Under President Javier Milei, the country is stabilizing via fiscal discipline, floating exchange bands, and a $20B currency-swap lifeline from the U.S. Treasury. The peso is holding, reserves are up 60%, and inflation is trending down — cautiously optimistic signals for a country notorious for default cycles. But Washington’s cash comes with political strings: lose midterms, lose support. A private-sector follow-on facility could double the war chest to $40B. The macro thesis? This isn’t cosmetic reform — it’s monetary orthodoxy with real teeth. But in Argentina, politics—not policy—usually ruins the ending. (More)

THIS WEEK IN HISTORY

When Markets Fell Off a Cliff

On October 19, 1987, U.S. markets experienced the worst single-day decline in history. The Dow Jones Industrial Average crashed 22.6%, wiping out over $500 billion in market value—in one session. Dubbed Black Monday, the shock rippled globally, hitting every major exchange and triggering trading halts in London, Hong Kong, and Sydney.

The causes? A toxic mix of program trading, rising interest rates, overvalued stocks, and geopolitical tensions. But what set it apart was speed. Markets lacked circuit breakers. There were no risk management playbooks for a 20% drawdown before lunch.

Regulators responded fast. By 1988, the SEC and CFTC introduced market-wide circuit breakers—now a core part of market plumbing.

Why it matters for PE: Black Monday didn’t just batter public equities—it catalyzed risk frameworks that shaped institutional investing. It also marked a turning point in how allocators viewed alternatives: less as a fringe play, more as a hedge against systemic shocks.

Bottom line: When public markets get chaotic, private capital gets interesting. Some of today’s LP behavior—favoring illiquidity premiums, secondaries, or NAV-based lending—has echoes in '87. (More)

COMPLIANCE CORNER

ESG Moves From Check-the-Box to Term Sheet

Environmental, social, and governance (ESG) scrutiny is no longer a post-closing nice-to-have. For PE firms operating in regulated or resource-intensive sectors, ESG due diligence now shapes whether deals get done at all.

In India, firms are grappling with mandatory disclosure regimes (SEBI, RBI), while the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) is forcing global portfolios to map ESG risks across supply chains—water use, hazardous waste, labor practices, fire safety infrastructure—not just policies on paper.

More than 73% of PE investors now report having formal ESG frameworks. The rationale? ESG’s not just about downside protection anymore—it’s also upside optionality. Clean records on groundwater permits or EPR compliance can be valuation drivers at exit. Misses? Deal breakers.

We’re seeing buyers redline environmental gaps, build ESG-linked reps and warranties into SPA docs, and walk away from plants in water-scarce zones with unpermitted withdrawals.

The takeaway: ESG isn’t an appendix to due diligence—it is due diligence. If you're not pressure-testing sustainability claims before signing, you're leaving risk—and potentially alpha—on the table. (More)

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TWEET OF THE WEEK

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