Private Equity Sponsors ‘Cautious’ Amid Market Uncertainty

Although macroeconomic ambiguity has put capital markets on a temporary pause, U.S. middle market private equity firms are still cautiously optimistic about the outlook for dealmaking, exits and returns, according to a recent survey from Churchill Asset Management, an affiliate of Nuveen.

The survey polled 164 senior leaders from Churchill’s private equity relationships “to gauge sentiment in today’s market environment and how these perspectives are influencing investment decisions.”

According to the survey, more than half of respondents predict normalized M&A activity in the first half of 2026, and one-quarter expect normalization as early as the second half of this year.

Congruent with this outlook, when asked how many exits they predict over the next 12 months, 42% of respondents noted two, with more than one-third (34%) eyeing three or more.

Further, the survey found expectations for returns equally strong, with more than 90% of respondents projecting 2025 base-case returns to match or exceed those from 2024.

‘The Power of Relationships’

Middle market private equity firms remain “confident” in their capacity to sustain strong returns and attractive deal flow, according to Churchill’s vice chairman of investor solutions, Randy Schwimmer.

Schwimmer said in a statement that quality deals for well-performing assets in non-cyclical sectors such as business and financial services are still being completed, also noting that “the power of relationships has never been more apparent.”

Survey respondents picked “relationships” and “speed and certainty” as top priorities when selecting a financing partner.

Continuation Vehicles Remain Viable

In the last two years, 95% of respondents used a senior lending strategy for portfolio companies. Other popular approaches were equity co-investment (85%) and junior capital (60%), according to the survey.

While most private equity leaders said they will maintain their current approach amid today’s investment environment, senior lending and continuation vehicles remain particularly popular. About one-third (36%) of sponsors said their appetite for senior lending has increased, followed by 33% for CVs and 30% for equity co-investments.

CVs are also gaining traction as a “strategic mainstay” for PE firms, the survey found. Among those that employed CVs in the last two years, 88% named retaining high-value “trophy” assets and providing liquidity to limited partners as their main motivations.

Notably, the adoption of this strategy looks resilient. The survey found that 79% of respondents said that even if the M&A environment improves and interest rates decline, the chances of pursuing a CV would either remain unchanged or would increase.

A Strategic Allocation Shift

Tariff pressures and political uncertainty are also resulting in a strategic allocation shift among general partners, according to the survey.

GPs expect to increase investments in sectors deemed more resilient, including business services (42%), utilities/environmental (19%) and financial services (17%).

Conversely, there has been a noticeable departure from consumer goods (-17%) and automotives (-12%), “as sponsors deem these sectors more vulnerable in the current economic climate.”