Welcome to this week's edition of The Private Capital Compass, brought to you by Private Capital Global (PCG), a Sparc Group company.  Deal momentum is returning to private equity after two years of muted activity. The rebound isn't explosive, but it's real, and significant.

This week, we spotlight five essential developments reshaping the private capital landscape, from the operational transformation required for scalable AI adoption to the regulatory-driven shift making ESG integration mandatory for value creation. We examine how London's mid-market slowdown reflects broader economic headwinds, while simultaneously exploring the emerging deal momentum that signals new opportunities for value creation leaders to accelerate time-to-impact in compressed hold periods.

We hope you enjoy the newsletter!

Compass Points

Key insights at a glance:

• Executive Order Opens 401(k)s to Private Equity: A new executive order removes legal barriers for U.S. retirement plans to include private equity, private credit, real estate, and cryptocurrency. This potentially unlocks access to trillions in retirement savings. Major PE firms are developing target date funds and evergreen products to integrate illiquid alternatives into mainstream portfolios. Expect gradual but significant capital inflows over 18-24 months as compliance frameworks solidify.

• Institutional Investors Shift Allocation Strategy: Large institutions managing over $1 trillion are becoming cautious on passive equities and private credit while showing renewed interest in hedge funds.27% plan to cut passive equity exposure in H2 2025 (up from 19% in H1) due to tariff-induced volatility. Private credit allocations are declining from 41% to 31% as uncertainty grows around lending valuations. Hedge funds see highest interest with 37% planning increased exposure.

• AI Becomes Core Value Creation Capability: Private equity firms are shifting from viewing AI as a standalone tool to embedding it as fundamental organizational capability that transforms entire business models. Successful portfolio companies automate high-volume decisions first, starting with engineering teams before expanding to finance and customer experience. Firms that overestimate portfolio company AI readiness during diligence face extended timelines and compromised ROI.

• London Mid-Market Activity Declines: Mid-market private equity investment in London (£10-250m deal range) declined 14% in H1 2025 with only 168 deals completed, reflecting broader economic uncertainty. National deal volumes dropped 17% to 726 deals, lowest since H2 2020. London maintains 45% of UK mid-market activity. Bolt-on acquisitions remained dominant at 50%+ of transactions. Investor appetite remains "cautiously optimistic" ahead of potential autumn budget changes.

• ESG Integration Now Mandatory for Value Creation: ESG is transitioning from optional risk management to essential value driver, powered by evolving global regulations and proven financial outperformance. 73% of PE investors now implement structured ESG frameworks throughout the investment lifecycle. This shift is driven by EU CSDDD requirements, direct impact on valuations, and consistent outperformance of ESG-focused funds.

Market Pulse

Equities

• S&P 500 (SPY): 636.72 (+1.4% past week)

• Dow Jones (DIA): 442.07 (+.53% past week)

Commodities

• Brent Crude: 66.63 (-8.4% past week)

• USO ETF: 73.71 (-1.67% past week)

Deep Dive: Deal Momentum Returns & What It Means for Value Creation Leaders

After two years of muted exits and compressed valuations, 2025 marks a turning point in global private equity activity. According to Bain & Company's midyear outlook and Adams Street Partners' Q2 analysis, buyout volume is climbing and exit pathways are reopening.

Best-performing funds are accelerating acquisitions, closing exits at fair multiples, and reactivating buy-and-build strategies. The result is additional challenges for operators: Value creation lifecycles are compressing, and the window for delivering operational upside is narrowing.

From Freeze to Thaw

Dealmaking is rebounding, but with discipline. Investors remain cautious, underwriting is more rigorous, and leverage costs remain elevated. This environment rewards clarity of value, quality of execution, and speed of results. Valuations have re-based across software, healthcare, and B2B services. Yet dealmaking optimism is rising but only where operational confidence can support it.

Five Critical Shifts for Operators

1. Exit Readiness as Ongoing Discipline: Buyers are returning with selective appetites. Portfolio companies that maintain "always ready" status in data hygiene, governance maturity, and commercial clarity will command premiums.

2. Reinvigorated Buy-and-Build Strategies: Platform M&A is reactivating, demanding updated integration models. Successful operators are moving from static playbooks to dynamic, tech-enabled approaches that reduce time to synergy realization.

3. Time-to-Impact Compression: With hold periods shortening and exit windows uncertain, operating leaders must produce measurable improvements within 12-18 months post-deal. This creates premium value on execution velocity and proven methodologies.

4. Value Engineering in Underwriting: Deal teams are embedding value creation hypotheses more rigorously into investment theses, requiring closer collaboration between investment and operations teams from day one.

5. Asset Quality Over Growth Alone: Assets with demonstrable operational excellence—pricing optimization, customer retention, supply chain agility—are outperforming pure growth stories.

Deal Spotlight: L Catterton Takes Minority Stake in Dishoom

Transaction: L Catterton acquired a minority stake valuing Dishoom at approximately £300m, the Indian restaurant group's first PE investment since its 2010 founding. The 12-restaurant UK chain reported £7.4m pre-tax profits in 2023 on sales exceeding £100m.

Strategic Implications: The deal reflects PE firms targeting established restaurant groups with proven unit economics and brand differentiation, especially those ready for international expansion. Dishoom's successful New York pop-up and ambitious US plans (first permanent location planned for 2026) demonstrate how modern hospitality brands leverage cultural authenticity to command premium valuations.Experiential dining's resilience and international expansion potential are attracting institutional capital in an increasingly competitive market.

As deal momentum builds, operating partners and value creation leaders must shift from defense to offense. The opportunity is to lead transformation that accelerates time-to-value and exit readiness.

1. Audit Portfolio Readiness: Assess key portfolio companies for data maturity, operational efficiency, and go-to-market strength

2. Refresh Integration Capabilities: Update buy-and-build processes for speed, synergy visibility, and tracking discipline

3. Embed Value Creation KPIs Early: Establish cross-functional ownership and clear milestones in new deals

4. Document and Showcase Wins: Build proof points for both investor confidence and strategic acquirer interest

Opening & Closing Remarks from Erik Boender, Vice President & COO, Private Capital Global (a Sparc Group company)

Thank you for reading this week's edition of The Private Capital Compass. As deal momentum returns, the firms that combine operational excellence with execution speed will define the next phase of private equity performance.

We hope this edition provided actionable insights into the shifting dynamics reshaping value creation across private markets.