Ask any seasoned fund manager about investing in UK private equity, and you’ll get a mix of enthusiasm and caution. The UK remains a global financial hub, home to major players like Apax Partners, CVC Capital Partners, and Permira. Yet, navigating its regulatory shifts, evolving tax policies, and post-Brexit challenges is anything but straightforward.

Despite the uncertainties, money is still flowing in. In 2023, UK-focused private equity and venture capital firms raised £27.9 billion, according to the British Private Equity & Venture Capital Association (BVCA). But while dry powder is available, investors are far more selective, scrutinizing fund structures, compliance frameworks, and sector-specific risks before committing capital.

At the same time, private equity strategies are shifting. With the IPO market sluggish and debt financing tightening, firms are leaning into secondary sales and infrastructure bets to generate returns. Meanwhile, FCA regulations, tax reforms, and ESG mandates are forcing fund managers to rethink structures, exit timelines, and investor relations.

For anyone in UK private equity—whether managing funds, raising capital, or evaluating deals—understanding these regulatory and market trends is no longer optional. Here’s what investors should be paying attention to.

UK Private Equity Regulations: A Moving Target for Fund Managers

Regulatory oversight in UK private equity has always been a moving target, but recent developments have raised the stakes for fund managers. Stricter FCA governance, Brexit’s lingering impact, and ESG reporting mandates are all reshaping how funds operate.

FCA’s Stricter Governance Standards: Raising the Bar for Fund Managers

The Financial Conduct Authority (FCA) is tightening its grip on private equity governance, pushing for greater transparency and accountability. The Senior Managers and Certification Regime (SMCR) now requires fund managers to demonstrate clear oversight of investment strategies and risk controls, reducing the tolerance for aggressive, opaque deal-making.

The FCA is also cracking down on “greenwashing” in ESG-focused funds. With £88 billion of UK assets now under ESG mandates, according to Morningstar, firms need to back up sustainability claims with hard data. The UK Sustainability Disclosure Requirements (SDR), which replaced the EU’s SFDR, demand granular impact reporting—failure to comply risks regulatory fines and investor skepticism.

For fund managers, the days of using ESG purely as a marketing tool are over. Investors expect real impact metrics, and regulators will hold funds accountable for exaggerated sustainability claims.

Brexit Fallout: How UK PE Firms Are Restructuring to Maintain Access to EU Capital

Brexit threw a wrench into cross-border fundraising, and firms are still adjusting their structures. Previously, UK-based PE firms could market funds across the EU under AIFMD passporting rules. That door has closed, forcing firms to either set up EU entities (Luxembourg, Dublin) or rely on National Private Placement Regimes (NPPRs) to reach European LPs.

The biggest UK firms, including Apax and CVC, have already pivoted—setting up Luxembourg-domiciled funds to sidestep Brexit-related barriers. Meanwhile, mid-sized funds without EU footholds are shifting their focus to Middle Eastern and North American investors, diversifying their LP base.

Despite these hurdles, London hasn’t lost its PE dominance. The UK remains the largest private equity hub in Europe, with more institutional capital flowing into its funds than any other jurisdiction outside the US.

Fund Structuring and Tax Strategies: Balancing Efficiency with Compliance

Private equity thrives on tax efficiency, but with the UK government reviewing carried interest taxation and tightening offshore scrutiny, firms are under pressure to reassess fund structures.

Carried Interest Taxation: Will Fund Managers Face Higher Rates?

The UK’s carried interest tax regime has long been favorable, taxing it at 28% under capital gains rules rather than the 40-45% income tax rate. But this advantage is under political fire. If future tax reforms push carried interest into income tax brackets, UK-based fund managers could face one of the highest tax burdens in Europe.

To hedge against this risk, some firms are restructuring GP compensation—shifting towards performance-linked fees or offshore structures in tax-neutral jurisdictions like Guernsey and Jersey. However, with increased HMRC scrutiny on offshore tax avoidance, fund managers need to balance efficiency with regulatory compliance.

VAT on Fund Management Fees: A Hidden Cost for UK Firms

Unlike in the US, UK fund management fees are subject to 20% VAT, unless firms use exempt offshore structures. Many UK-based PE firms mitigate this by:

• Structuring advisory entities in Jersey or Guernsey to reduce VAT exposure.
• Using special purpose vehicles (SPVs) to manage tax liabilities.
• Opting for investor-led structures that shift some tax burden away from the GP.

With the UK government tightening oversight on offshore tax avoidance, fund managers must be careful. Overly aggressive tax structuring can invite scrutiny from HMRC, leading to fines or reputational damage.

Withholding Tax and Treaty Planning: A Critical Consideration for Global LPs

For international investors in UK private equity funds, withholding tax on dividends and interest payments is a key concern. The UK has an extensive treaty network that reduces tax burdens for investors from jurisdictions like the US, Canada, and the Middle East.

However, Brexit has disrupted some of these benefits. UK funds no longer enjoy the EU’s Parent-Subsidiary Directive, which previously allowed tax-free profit distributions within the EU. Many funds are now setting up parallel Luxembourg structures to retain tax efficiencies for European LPs.

Sector-Specific PE Investment Trends: Where UK Funds Are Placing Bets

UK private equity isn’t retreating—it’s redirecting capital into sectors that can weather economic uncertainty. The days of pouring money into overhyped, cash-burning startups are over. Instead, firms are doubling down on profitability, regulatory stability, and tangible assets.

Tech & SaaS: A Valuation Reset, But Not a Collapse

Tech private equity in the UK has undergone a rude awakening. Gone are the days when SaaS startups could command 20x revenue multiples with zero profitability. The interest rate spike forced a reality check, pushing firms toward more measured valuations and cash-efficient business models.

But has tech really lost its appeal? Hardly. The focus has simply shifted. Growth-at-any-cost is dead—but automation, cybersecurity, and AI-driven enterprise software are still drawing capital. Hg Capital and Index Ventures have stayed aggressive in these verticals, targeting companies with sticky customer bases and real pricing power.

Meanwhile, fintech, once the UK’s most celebrated PE target, has had a brutal reset.

Infrastructure & Energy Transition: The Next Long-Term Play

Rising interest rates may have cooled traditional LBOs, but infrastructure and renewable energy deals are heating up fast. UK private equity funds have collectively put £24B into energy transition projects in 2023—a staggering 42% jump year-over-year.

Macquarie, Brookfield, and KKR are aggressively acquiring offshore wind, battery storage, and smart grid assets, capitalizing on the UK’s net-zero commitments. This isn’t just ESG signaling—these assets provide stable, inflation-hedged cash flows at a time when equity markets remain volatile.

One thing is clear: energy transition PE deals are no longer just for infrastructure funds. Traditional buyout firms are now bidding on clean energy platforms, EV charging networks, and energy storage solutions, recognizing that demand is structurally embedded into UK policy for the next two decades.

Healthcare & Biotech: A Selective But Active Market

Healthcare investments are still one of private equity’s safest bets, but firms are being more cautious than in the pandemic boom. Investors who chased high-multiple biotech plays in 2020-21 are now stuck in an unforgiving exit market, with IPOs on ice and strategic buyers hesitating.

That said, defensive healthcare assets are still seeing strong interest. The best-performing funds aren’t throwing money at speculative biotech—they’re focusing on specialty clinics, diagnostics, and drug development platforms with a clear commercial pathway.

Fundraising in a More Selective Market: What’s Working Now?

Forget the days when every GP with a pitch deck could raise a billion-dollar fund. Institutional investors are more cautious, first-time funds are struggling, and even top-tier firms are making strategic pivots to stay competitive.

LPs Are Deploying Capital—but Only to the Right Funds

The fundraising slowdown is real, but not a full-on freeze. LPs are still committing capital, but their criteria have tightened significantly. Institutional investors are prioritizing:

• Re-ups with existing managers over backing new firms.
• Sector specialists over generalist funds.
• Funds that offer strong co-investment opportunities.

Mega-funds are still getting money—KKR, Apax, and Permira closed multi-billion-pound funds in 2023. But for first-time fund managers? Hitting targets is an uphill battle.

Family Offices & Sovereign Wealth Funds: Stepping in as Institutional LPs Step Back

With traditional LPs hesitant, family offices and Middle Eastern sovereign wealth funds (SWFs) are filling the gap. The Qatar Investment Authority (QIA), Saudi PIF, and Mubadala have been aggressive direct investors in UK PE, particularly in fintech, real estate, and energy.

Here’s why this matters: unlike pension funds, SWFs don’t face the same allocation constraints. They’re less sensitive to interest rate fluctuations, making them a critical capital source for UK buyout firms facing institutional hesitancy.

Continuation Funds: The New Liquidity Play for PE Firms

With traditional exits harder to execute, continuation funds have exploded in popularity.

Rather than selling assets in a weak market, PE firms are rolling strong-performing investments into new vehicles backed by secondaries investors. This gives LPs partial liquidity while allowing GPs to keep control over valuable holdings.

Bridgepoint and Cinven have led the charge on these structures, using them to extend the holding period on high-performing assets rather than rushing exits. With more than £10B in UK PE assets shifted into continuation vehicles in 2023, expect this strategy to become even more common in 2024.

Exit Strategies: What’s Actually Working Right Now?

Forget the IPO boom of 2021—UK private equity firms are getting far more creative with their exits.

Trade Sales & Strategic Buyers: The Most Reliable Exit Path

Public markets are unpredictable, so PE firms are selling to corporates instead. In 2023:

• 60% of UK PE exits were trade sales, as corporates with cash on hand scooped up acquisitions.
• Private equity-to-private equity sales (secondary buyouts) made up 28% of exits.

For many firms, selling to a strategic buyer is simply the path of least resistance. Public market volatility makes IPOs a gamble, while private M&A remains active.

IPOs: Not Dead, But Still a Tough Sell

The UK IPO market is weak but not entirely frozen.

• Total IPO proceeds in 2023 hit just £2.6B—down 75% from 2021 levels.
• Bridgepoint’s partial listing of KKR-backed Bridgepoint Group was a rare exception.

Most PE firms are delaying IPOs or running dual-track exit processes, testing both private and public sale options before committing.

Dividend Recaps: A Tactical (But Risky) Liquidity Play

Some firms are turning back to dividend recapitalizations, extracting liquidity through leveraged loans.

• UK PE-backed dividend recaps hit £5B in 2023, despite cautious lender sentiment.
• Higher rates mean firms must be careful—overleveraging could backfire if earnings decline.

While dividend recaps aren’t the ideal exit strategy, they remain a tool for firms looking to return capital in a tighter liquidity environment.

UK private equity is entering a more selective, more complex era. The easy deals are gone, and fund managers who fail to adapt to shifting LP preferences, regulatory challenges, and new exit realities will be left behind.

What’s next? Sector specialization, creative deal structuring, and alternative liquidity solutions will separate the funds that thrive from those that struggle. The firms that navigate these shifts with precision—whether through infrastructure plays, healthcare roll-ups, or continuation funds—will define UK private equity’s next decade.