- within Finance and Banking, Environment and Technology topic(s)
A growing proportion of limited partners ("LPs"), in particular large institutional investors, are redirecting capital from U.S.-focused private fund managers toward European managers. There has been a historical tendency for LPs to disproportionately weight allocations to "home markets" but this trend has begun to change. We have seen this with our own European sponsor clients' fundraises over the last 24 months but the trend is beginning to be more widely recognised in particular amongst U.S. LPs. A recent global survey1 by placement agent Campbell Lutyens showed 12% of U.S. LPs indicating that they intend to reduce allocations to the U.S. in 2025 with 24% indicating they intend to increase exposure to Europe.
The US does however remain a significant and important market for most LPs – the global dominance of the U.S. economy and the depth of its capital markets mean it is unlikely to lose its crown as the premier destination for global investment any time soon. In this article, we take a look at the principal drivers behind this increased focus on European allocations and the key implications for U.S. and European managers.
Market Commentary: Reallocations from Key Players
New York City Retirement Systems' CIO, Steven Meier, recently told the Financial Times2 that he was considering a "gut check" review of its asset allocation at the end of the year. He specifically referenced the uncertainty and volatility in the US-domestic market driven by changes in policy as the driver for this review as these may affect the underlying assumptions concerning GDP growth, inflation, productivity, government spending and private capital flows. He also noted that Europe's plans to increase spending on defence would assist in delivering a more vibrant economy in Europe
Similarly, both CalPERS and CalSTRS have this year noted3 that a major change spurred by market volatility will be a re-focussing of investment strategy away from U.S. products. The pension plans expect 'deglobalisation' to be a major theme which will contribute to a gradual rebalancing of portfolios away from the current exposure to U.S.-backed assets.
Key Drivers of LP Reallocation 1. US Macro Risk: Trade Wars & Debt Levels
Uncertain U.S. trade policies and increasing national debt levels, coupled with concerns that these will be exacerbated by the "One Big Beautiful Bill Act", have contributed to a climate of heightened geopolitical and fiscal risk facing private fund managers looking to deploy capital into U.S. investments. LPs have taken note of this and many may view "Liberation Day" as a prompt to reconsider their regional allocations to the U.S., to which many LPs have been overweight in recent years.
2. Europe's Stable Policy Backdrop & Infrastructure Surge
A principal beneficiary of such rebalancing of allocations looks set to be European fund managers, particularly given the more predictable policy environment in Europe compared to the U.S. and where a €1 trillion German spending spree on defence and infrastructure is expected to boost growth. As a result, in addition to rebalancing of allocations by LPs, a number of large U.S. sponsors have been vocal about planned increases in investments in Europe – Apollo recently stated that it intends to invest as much as $100 billion in Germany, and Blackstone has indicated it plans to deploy $500 billion in Europe, over the next decade.4
There is therefore growing excitement for investments in Europe which factors in a gap in valuations between European companies and their U.S.-listed peers and falling financing costs.
Implications for Fund Managers
Opportunities for U.S. Fund Managers
Some US fund managers are viewing this as an opportunity, and are seeking to cater for the desire of such LPs to be less concentrated to the US and gain more exposure to the European market by expanding their non-U.S. and cross border pipelines. How this can be achieved remains to be seen – businesses with existing European platforms are likely to be the main beneficiaries, but the trend for manager consolidation through strategic M&A may play a greater role for US-domestic sponsors looking to add European capability quickly.
Preparations for European Fund Managers
European fund managers should make sure that they are prepared for the regulatory, legal, tax and structural requirements of U.S. LPs, which can impact how a fund is structured and how the fund and its investment operations are ultimately operated.
Conclusion
The increased focus of U.S. LPs on Europe is part of a wider trend of global LPs pursuing a strategic reallocation, not a wholesale shift – seeking European stability while retaining US exposure. For U.S.-focused private fund managers, this may act as the impetus to diversify and refine global positioning. For Europe, it's a moment of opportunity: a stable policy environment, comparatively low valuations compared to U.S. companies and the potential for focused government investment spending, offer a robust value proposition – and European managers should make sure that they are ready for it
Footnotes
1 Campbell Lutyens' Market Pulse based on a survey of 150+ LPs across 23 countries in April 2025 (Link:https:// campbell-lutyens.com/media/p2cnubiy/ market-pulse-summary_april-2025.pdf)
2 Source:https://www.ft.com/ content/65c82455-1b9a-4b15-b52a9979937690a1
4 Source:https://www.ft.com/ content/1391b1ff-2ce8-4f9e-b63f7cf5c918047b
5 Source:https://www.ft.com/content/ e6aa34eb-29e0-467a-a64caebc202de2b7
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
