How European Mid-Caps Became One of the World’s Most Compelling Investment Stories

There is no shortage of explanations for why European equity markets had a banner year in 2025.

A falling dollar. Rising geopolitical tensions. Undervalued European companies selling at historic discounts. The rotation out of technology and into HALO (Heavy Asset, Low Obsolescence) stocks.

But the most powerful driver of surging European equities may also be the most durable:

Europe has many exceptional, well-run businesses.

According to Dominic Lester, Jefferies EMEA Head of Investment Banking, European companies have always had to deal with fragmented markets, different regulations, and different languages. So, when they do achieve scale, that means you have a business that knows how to deliver value and tends to be very resilient.” Although the outbreak of conflict in Iran has rattled markets in the short term, the long-term growth story for many European companies remains compelling.

On March 24, in London, Jefferies will host its sixth annual Pan-European Mid-Cap Conference, where over 200 European businesses and almost 500 investors will forge connections and discuss the most notable trends shaping the sector.

We recently spoke with Dominic Lester and his colleague Lorna Shearin, Deputy Head of EMEA Investment Banking, to get their take on the state of European economies and the transaction environment. We also connected with Ed Keen, Head of Equities EMEA, and Alex Coffey, Head of EMEA Research, for additional perspective on why mid-sized companies are attracting so much investor interest.

Here are some of their most notable insights:

Finding Excellence in European Equities

Dominic: There are so many genuinely global businesses with leading capabilities based here, particularly in old-world sectors like industrials, mining, and aerospace and defense, which is obviously in and of itself becoming a major theme.

Private equity from the U.S., Asia, and around the world is increasingly interested in these kinds of companies, often available at low multiples. There is a geopolitical element here, too: A fair number of LPs are reallocating money from the U.S. to Europe.

There is also real leadership in terms of European companies developing interesting applications to leverage AI technology. In fact, I recently read a big study showing that European companies and their employees – particularly those in Scandinavia – are further along in adopting AI technology and tools than their peers in the U.S.

On the European Deal Environment

Lorna: Last year, there were fewer transactions overall, but you saw many large transactions, along with take-private and mega-sponsor deals becoming more prominent. Sponsors still have a large backlog of unsold assets, which is why continuation vehicles remain an important part of their portfolio mix. One distinctive dynamic in Europe is the tremendous number of family-owned and founder-led businesses. We are entering a generational transition that will present a diverse set of opportunities across geographies.

On the Unique Opportunity in Midcaps

Ed: Europe has a very different liquidity profile than the U.S., with U.S. companies, on average, much larger and having access to deeper liquidity. Consequently, US volumes have been much larger than those in Europe, which has a comparatively limited level of very active retail investor participation. One outcome of this is that European midcaps have market caps more like those of U.S. small caps. This does, however, create a lot of opportunity. When you invest in European midcaps, you often have a chance to generate more alpha because these businesses aren’t as well-covered or understood by the market. This is one of the reasons Jefferies has invested so heavily in our equity research, to the point that we are number one in mid-cap coverage across pan-European equities.

As 2026 began, you saw companies everywhere, including in Europe, being evaluated for their exposure to AI disruption risk. No one knows for sure how that will play itself out. In the meantime, whilst most of the leading-edge AI technology development is happening in the U.S. and Asia, Europe is investing heavily in supplying much of the infrastructure the AI industry needs. The difference in diversification is drawing more money out of the US and into Europe.

Alex: Today, the mid-cap universe in Europe is trading at a 10% discount to large caps, despite generally offering more growth and strong competitive advantages. Think about the journey of a company that IPOs, starts as a small-cap, and grows into a mid-cap. There’s a big survivorship bias right there, because only the best ones make it to this point. Look around Europe, and you will also see many companies you have probably never heard of, making everything from skiing helmets to bike racks, that are the absolute best at what they do. You see a lot of great European midcaps that are asset-light – so they have great gross and operating margins – that are central to helping other companies design and develop products.

Finally, there’s also some simple reversion happening. You can believe that the U.S. is the most open and dynamic economy in the world, yet still think some rebalancing was in order when U.S. stocks reached nearly two-thirds of the global equity market value, as they did recently.

On What’s Ahead

Lorna: I think we are entering a cycle defined less by financial leverage in capital structuring and more by operational leadership. Some of these companies have absolute excellence in navigating different jurisdictions and regulations. They are led by people with good operational leadership who tend to have good strategic leadership and a good sense of where there might be acquisition or consolidation opportunities. Investors want to back these kinds of leaders. Advice matters more than ever in an environment where you’re relying on operational leadership to really grow a business, and that’s yet another reason why Jefferies is so well-positioned in Europe.

Dominic: At the policy level in Europe, there is still a lot of nationalistic thinking and sclerotic behavior. But some existential issues – notably on defense – are spurring a renewed sense of urgency that, over time, can create a more favorable operating environment for European companies. In the meantime, we are seeing a lot more private-sector collaboration, with established companies partnering with startups and startups securing funding.

Europe must also invest significantly in its defense and industrial base. Where will all that money come from? A big part of the answer will be private equity and big infrastructure funds that partner with government and corporate clients to provide the capital needed for a significant build-out of European infrastructure. We are very much on the front end of a durable long-term investment story.

A Framework for Tracking the Energy Transition in 2026

Despite apparent headwinds, global energy transition investment hit a record $2.3trn in 2025, up 8% YoY. Amid this, one of the key challenges for companies and investors is measuring progress. How can one separate headlines from on-the-ground data and get a clear picture of global transition strategy in 2026?

Jefferies’ Sustainability & Transition Team set out to address that question in a new note, Energy Transition Download: Practical Tools to Track Macro, Sector & Companies. The resource aggregates the analytical tools and datasets most useful for understanding the transition and guiding thinking across the investor community.

Kaya Identity: A Framework for Tracking the Energy Transition

One of the clearest frameworks for assessing transition progress is the Kaya Identity, a formula that breaks global emissions into four underlying drivers: population, economic growth, energy efficiency, and the carbon intensity of energy.

As an equation, it reads as follows:

CO₂ emissions = Population × GDP per capita × Energy intensity of GDP × Carbon intensity of energy

In plain English, investors and economists use the formula to clarify why emissions are changing and where progress is coming from. Assessing the global transition through the Kaya framework, we see that:

• Total carbon emissions have grown more slowly over the past decade, rising roughly 0.3 percent per year, compared with 1.9 percent annual growth previously.
• The population continues to rise globally, but the pace of growth has slowed and now sits below one percent annually.
• Economic productivity continues to expand, with global GDP per capita increasing roughly two percent in 2025.
• Energy intensity—the amount of energy required to generate economic output—continues to decline globally, meaning economies are becoming more energy-efficient. However, the pace of improvement has slowed compared with the decade before the pandemic.
• The carbon intensity of energy remains the main decarbonization story of the past two decades. Renewable generation continues to expand, gradually shifting energy systems away from coal and other high-emitting fuels.
• Fossil emissions still grew over the past decade, but at a much slower rate than in earlier periods.

The Kaya framework is equally useful at the country level, where decarbonization pathways differ significantly. For example:

• China accounts for roughly 30 percent of global emissions.
  • In 2025, emissions were broadly flat, driven by improvements in energy intensity and carbon intensity. Coal emissions were stable, while gas and oil consumption rose modestly.

• The United States represents roughly 13 percent of global emissions. U.S. emissions increased 1.9 percent year-over-year in 2025, reversing recent declines.
  • The increase was driven primarily by colder weather, higher natural-gas prices—which led to greater coal burn—and rising electricity demand.

• India accounts for roughly 8 percent of global emissions. Emissions rose 1.4 percent year-over-year in 2025, below historical trends, with coal emissions increasing only modestly.

Following the Capital: Where Transition Investment Is Flowing

Now, it’s worth moving from the macro framework of Kaya toward real-world capital deployment and related market signals. In 2026, how much capital continues to flow into the energy transition, and where?

Last year, global energy-transition investment in the real economy reached approximately $2.3 trillion, with spending concentrated in electrified transport, renewable energy, and grid infrastructure.

• Electrified transport is now the largest segment of transition investment, with roughly $0.9 trillion deployed in 2025 across electric vehicles and charging infrastructure.
• Renewable energy attracted around $0.7 trillion, with solar generation leading among sub-sectors.
• Grid infrastructure continues to see accelerating investment, reaching $0.4 trillion.

Investment trends also vary significantly by region. China saw its first decline in real-economy transition spending since 2013, while both the United States and the European Union recorded increases. Among

major markets, investment growth was strongest in the EU and Japan, rising 43 percent and 18 percent year-over-year, respectively.

Tracking the Transition in 2026

Taken together, these frameworks can provide a clearer picture of how the transition is unfolding against a backdrop of shifting priorities and turbulent global markets. Progress continues on most fronts—but it may be more uneven, and more concentrated in certain countries and sectors, than in recent years.

The Jefferies Sustainability & Transition team tracks these dynamics across more than 800 public companies, alongside private-market activity across the sector. Follow along for more insights.

Is IT Services the First Real Example of AI Disruption?

The most discussed topic in global finance is the potential for AI-driven disruption to workforces and business models. The expectation is that as generative AI tools expand across the economy, workflows will shift across many white-collar industries. Roles dependent on technical skills, such as software engineering or accounting, may increasingly be automated, while high-touch or people-facing roles absorb more human labor. Businesses’ revenue mix could shift accordingly.

To date, an AI-driven overhaul remains largely theoretical. Layoffs are in line with historical averages,^[1] and gen-AI adoption remains slow.^[2] The question many people are asking, then, is where the first signals of white-collar disruption will appear. Where and how will AI begin to change how business gets done?

Many have pointed to software, which saw a Claude-inspired selloff in recent weeks. Others have speculated about back-office and administrative industries. A new report from Jefferies’ India Equity Research team suggests the answer may instead be IT services, where there is growing evidence that AI is already reshaping the historic business mix.

A Structural Shift in IT Services

For decades, IT has operated on a standard model, where teams of engineers and consultants help enterprises maintain their software systems and modernize legacy code. Much of the sector’s revenue comes from these so-called managed services, which typically arrive through long-term contracts.

Jefferies projects that generative AI is already eroding that foundation. Tools capable of automating code updates, troubleshooting infrastructure, and generating documentation are reducing the amount of labor required for managed services. As AI capabilities improve, the traditional outsourcing model—built around large pools of technical talent—could give way to something closer to “technology arbitrage.” Software tools will perform tasks that once required teams of engineers.

That shift will not eliminate the role of IT services firms, but the nature of the work will change. Rather than spending most of their time maintaining systems, service providers may see a larger share of revenue come from advisory work, implementation projects, and specialized AI integration.

How AI Changes the Economics of IT

The result of these changes is a more cyclical business model. IT managed services contracts produce steady, recurring revenue because companies must maintain their systems regardless of economic conditions. Consulting and implementation work, by contrast, tends to rise and fall with corporate technology budgets. As AI pushes the industry toward that mix, the sector could become more sensitive to the broader investment cycle.

This transition will also require significant changes in IT talent and operating models. Firms that once competed on scale may instead need deeper expertise in AI architecture, data infrastructure, and industry-specific applications. In practical terms, that could mean smaller teams with more specialized skills, and a greater emphasis on designing and deploying automated systems rather than maintaining them.

Lessons From the IT Sector’s Transition

As these changes materialize, the IT services industry may offer an early window into how AI affects white-collar work more broadly. Changes in its labor structure and revenue mix point to two ways AI could reshape other knowledge-based professions.

First, the changes to work may arrive not through mass layoffs. Technical work that once required large teams will increasingly be handled by digital tools. But human labor may simply move up the value chain as a result, toward advisory and integration work. The early labor impact of AI may produce a shift in job composition rather than a sudden reduction in employment.

Second, the economics of white-collar industries may change. Recurring responsibilities that once generated stable revenue may become more prone to automation. In their place, firms could rely more heavily on consulting and specialized engagements. Those revenue streams tend to be more project-based and more sensitive to corporate investment cycles.

For now, those changes are only beginning to emerge. But in the months ahead, the IT services sector could be seen as one of the first places where the abstract conversation about AI disruption becomes visible in the real structure of business.

^[1] https://www.cnn.com/2026/03/02/business/ai-tech-jobs-layoffs

2 https://www.cnbc.com/2026/02/26/cnbc-inside-india-newsletter-ai-hit-software-firms-india-it.html

³ https://www.goldmansachs.com/insights/articles/how-will-ai-affect-the-global-workforce

Data Centers Face Growing Policy Headwinds

As with other disruptive economic or technological shift, the rapid growth of AI is starting to draw backlash, including from U.S. political leaders. Scrutiny is on hyperscalers like Microsoft and Amazon Web Services over the potential impact of data center growth on electricity prices and AI more broadly across society

For policymakers and business leaders, it’s a balancing act. AI infrastructure is one of the economy’s brightest spots, but electricity prices have risen by double digits for many U.S. consumers, with a perception that AI is causing this

A new note from Jefferies’ Washington Strategy team looks at how opposition to data center expansion could translate into policy action—and what that might mean for the trajectory of AI infrastructure.

Bipartisan Political Scrutiny Builds Around Data Center Growth

Concern about data center expansion has made unlikely allies of the Trump Administration and Democratic leaders in Congress, including Senators Bernie Sanders and Richard Blumenthal. It comes as the President tries to rein in fast-rising electricity costs in the Northeast—an increasingly sensitive issue for voters across the region.^[1]

The Administration has said Americans should not face higher electricity bills as a result of data center growth and has asked hyperscalers to publicly commit to a new compact governing the pace of AI infrastructure expansion.^[2] Senator Sanders has gone further, calling for a nationwide pause on new development. Six states have proposed some form of data center moratorium, with several measures extending through late 2029.

In response, Microsoft has launched a “Community-First AI Infrastructure” plan, pledging to fund its own facilities while investing in water conservation, local jobs, tax bases, and AI training. The plan includes a commitment to cover incremental electricity costs for consumers in areas where Microsoft is building data centers.^[3]

Microsoft is one of several hyperscalers with major AI infrastructure projects underway, alongside OpenAI, Meta, Amazon Web Services, and others. The key question in the months ahead is which policy levers federal and state leaders may use to manage growing concerns around the scale and pace of this expansion.

Twenty five data center projects have been cancelled or postponed this month, a 56 percent month-on-month increase.^[1]

There are several policy levers available to the Trump Administration, federal lawmakers, and state governments. Some—such as easing Bureau of Land Management permitting standards—are already in effect. Others, including scaling back state tax incentives, remain under discussion and negotiation.

• Federal Permitting and “Energy Dominance” Policy: The Trump Administration and Congressional Republicans are prioritizing lower energy costs by accelerating permits for energy projects and expanding domestic production. The Reconciliation 2.0 blueprint emphasizes easing Bureau of Land Management permitting rules when the federal government owns less than half of the subsurface minerals within a drilling space unit.
• Cost Allocation Requirements for AI Companies: Lawmakers are increasingly weighing policies that would require AI companies and data centers to bear a larger share of grid-related costs. Ohio now requires large power users to cover 85 percent of the capacity costs they create, and federal officials may explore similar approaches.
• State Tax Incentive Reform: States are beginning to reassess data center tax incentives, as today’s high-energy, large-scale facilities no longer align with the assumptions behind earlier programs. Katie Hobbs’s recent call reflects this shift.
• Consumer Energy Support and Price Regulation: States may expand energy assistance programs or formalize electricity price caps to shield consumers from higher costs. Federal efforts to preempt state authority are likely to face resistance, given states’ continued leadership in AI-related regulation.

What to Watch Going Forward

The most telling signal for AI infrastructure amid mounting policy headwinds will be forecast versus actual data center load. Jefferies will closely track how much data center capacity actually comes online over the course of the year relative to current industry projections. In several regions that have introduced more stringent interconnection rules, large-load queues have already begun to shrink.

Credit markets may offer an additional early signal. Widening credit default swap (CDS) spreads could indicate how investors are reassessing hyperscaler AI capital expenditure and its funding profile. Large-load tariffs are another variable to watch. Some states, like Ohio, have begun introducing new tariff structures aimed at discouraging speculative load requests.

Federal agencies are also likely to shape outcomes. The Department of Energy has asked the Federal Energy Regulatory Commission to begin developing rules to help large electricity users connect to the grid more quickly and efficiently—setting the stage for potential tension between federal and state authorities.

Finally, the upcoming Prince William Digital Gateway hearing could prove pivotal. The Virginia Court of Appeals has barred construction pending the resolution of multiple lawsuits, with oral arguments scheduled for the week of February 23–24. The decision keeps one of the largest proposed U.S. data center campuses in limbo.

For continued coverage of AI infrastructure, capital expenditure, and related policy dynamics, see Jefferies Insights.

^[1] https://www.politico.com/news/2026/01/16/trump-tame-electricity-prices-00733422

^[2] https://www.politico.com/news/2026/02/09/trump-administration-eyes-data-center-agreements-amid-energy-price-spikes-00772024?_bhlid=6e0c30a25b3af1149a99a60bdeabbe0de43dd8ff&utm_campaign=ai-startup-ceo-warns-something-big-is-happening&utm_medium=newsletter&utm_source=capital.news

^[3] https://blogs.microsoft.com/on-the-issues/2026/01/13/community-first-ai-infrastructure/

^[4] Don Johnson, Chief Economist at MacroEdge Data Stream

Opportunities Abound Amid Overblown Software Selloff

By: Ron Eliasek

Jefferies Chairman of TMT, Head of Software

Fifteen years ago, Marc Andreessen famously said, “Software is eating the world.”

But on February 3, public software companies lost $300 billion in market value amid fears that new tools like Anthropic’s Claude Cowork will eat their business models. At one point, the IGV iShares tech-software ETF was the most oversold ever relative to the broader S&P 500 index, according to an analysis by my colleagues in Jefferies Equity Research.

However, there are good reasons to believe the indiscriminate selloff is overblown. Artificial intelligence will be transformational – and arguably already is – but software companies with deep moats, trusted brands, and top talent are still positioned to thrive. Moreover, many good profitable companies are on sale, with shares of both application and infrastructure software companies down 22% and 17%, respectively, in the last three months.

We have been hearing four primary concerns from investors about the software market, yet we believe quality software companies have credible answers to all of them:

Although we believe the recent software selloff may have been overdone, it should focus investors’ minds on the primacy of product leadership, as software companies can no longer win with just features and tools.

The software companies poised to thrive in an increasingly AI-enabled world will be those that leverage domain-specific and proprietary data to help customers execute mission-critical tasks and manage ecosystem integrations. Enterprise customers will still want to partner with trusted brands, led by talented people with deep domain knowledge. And over time, good software companies will benefit from the substantial in-house investments they are making in AI R&D.

AI may indeed change everything, but it has not changed the value proposition for incumbent software companies that can sustain and expand their competitive moats.

Is the AI Investment Cycle Shifting Toward Memory Suppliers?

This article is adapted from Greed & Fear, a weekly newsletter written by Christopher Wood, Global Head of Equity Strategy at Jefferies. Wood has consistently ranked among the top equity strategists in major broker surveys across Asia over the past two decades.

AI-related capital spending continues to rise, but investor attention is shifting toward companies supplying critical components—particularly memory.

In a recent edition of Greed & Fear, Chris Wood argues that the multi-year AI investment cycle has entered a new phase, with pricing power moving from hyperscaler cloud providers to memory producers. SK Hynix and Micron have been key beneficiaries, with market capitalizations rising alongside contract prices for advanced memory.

That shift has come as cloud leaders such as Microsoft and Amazon Web Services continue to spend heavily on AI infrastructure but have seen weaker equity performance in recent months. These companies face growing pressure to demonstrate returns on what has become a multi-year investment cycle, even as some report year-over-year growth in AI-related revenue.

AI Infrastructure Economics Shift Toward Memory

High-bandwidth memory (HBM)—critical for training and running complex, data-intensive models—is in high demand and tight supply. Jefferies estimates that memory prices rose roughly 50 percent last quarter, reinforcing supplier leverage across the AI supply chain.

That pricing power carries significant cost implications. Building new fabrication facilities now requires capital outlays in the tens of billions of dollars, and Jefferies notes that some memory manufacturers are asking customers to help finance that expansion in return for assured supply.

Wood notes this departs from the long-standing expectation that large chip buyers would exert downward pressure on supplier margins.

Over time, memory producers such as SK Hynix are likely to face the same investor questions that have weighed on hyperscalers in recent quarters: when these AI infrastructure investments will begin to generate returns and, ultimately, profitability.

Wood also cautions that as the AI investment cycle matures, it may come to resemble other capital-intensive industries, where returns tend to normalize over time.

AI Growth Meets Energy Limits

Jefferies notes that alongside growing enthusiasm for AI memory providers, concerns persist around the energy demands of these technologies and whether the U.S. can meet them.

In October, OpenAI published an open letter urging the U.S. government to set an ambitious goal of adding 100 gigawatts of new power capacity per year.[1] Jefferies has previously noted that the current U.S. power grid—roughly 70 percent of which is more than 25 years old and showing signs of deterioration—may struggle to store and transmit that energy, even if generation capacity expands.

There is broad consensus that significant investment in domestic energy infrastructure will be required to support continued AI growth, from hyperscalers to component suppliers.

In some cases, technology companies are responding by securing power supplies directly, rather than relying solely on existing grid capacity. This week, Google announced a $4.75 billion deal to acquire Intersect, a wind and solar developer. The acquisition would make Google the first hyperscaler to own a power company.[2]

The Next Phase of the AI Cycle

While memory suppliers have emerged as near-term beneficiaries, it remains difficult to identify a clear, long-term winner in the next phase of the AI investment cycle.

The dominant theme is likely to be sustained investor pressure—on companies throughout the stack—to show that today’s record capital spending can translate into profitable growth. That scrutiny is already evident among hyperscalers and is likely to extend to critical component and AI infrastructure suppliers over time.

[1] https://ig.ft.com/ai-power/

[2] https://www.wsj.com/business/energy-oil/google-is-spending-big-to-build-a-lead-in-the-ai-energy-race-a8b5734a?gaa_at=eafs&gaa_n=AWEtsqdDhcrlcM196f5C8RAp-iIurGYIiZK9Q9FQ4aXS-1_XO1NVlbV8cC0jQ21M-gg%3D&gaa_ts=6982583d&gaa_sig=kZB-Cx1mnIqZJ8h-haE5QF2aS-394PZnxbNNkoodvMZTFEK7GzMzfe2zwyOl7t65KyGZsgIsVKx8LehDCD4XrA%3D%3D

2025 Global Secondary Market Review: Another Record-Breaking Year

The global secondary market reached $240 billion in transaction volume in 2025, a 48 percent year-over-year increase that surpassed expectations and marked the largest year on record. That followed a record-breaking 2024. 

Activity accelerated as the year progressed, with $137 billion in volume in the second half alone. Strong buyside demand, supported by rising levels of dedicated secondary capital and new market entrants, met a steady supply of LP portfolios and GP-led opportunities, as both investors and sponsors continued to prioritize liquidity and active portfolio management. 

LP Market: Larger Transactions and an Evolving Buyer Base 

LP-led transactions totaled $125 billion in 2025, representing 52 percent of total secondary market activity. Volume was driven by LPs selling diversified portfolios to accelerate liquidity and manage overallocations in a low-distribution environment. Activity increased especially in the second half of the year, with $69 billion of volume in H2 alone, evidence of continued strong momentum. Additionally, transaction sizes continued to scale in 2025, with 27 LP deals exceeding $1 billion and the largest LP market transaction surpassing $5 billion. 

Average LP portfolio pricing finished the year at 87 percent of net asset value (NAV), a 200-basis-point decline from 2024. The decline reflected an older vintage mix of buyout portfolios and a larger share of venture and growth activity. Buyout portfolios brought to market skewed older, with an average vintage of 2016 compared with 2018 in 2024. By strategy, buyout pricing declined to 92 percent of NAV, venture and growth pricing increased to 78 percent, credit pricing remained stable at 91 percent, and real estate pricing declined to 70 percent of NAV. 

Pricing also varied by fund age. The weighted average vintage sold across strategies was 2018. Funds less than five years old priced at an average of 95 percent of NAV, while tail-end funds more than ten years old priced at 73 percent of NAV. LP transactions continued to incorporate structuring solutions, with deferred pricing used in approximately 23 percent of transactions and improving pricing relative to full-cash deals.

GP Market: Continued Expansion Across Sponsors and Strategies 

GP-led secondary volume reached $115 billion in 2025, representing a 53 percent increase year over year and accounting for 48 percent of total secondary market activity. Continuation vehicles (CVs) comprised the majority of GP-led transactions, with activity spanning buyout, venture and growth, credit, and real assets strategies. GP-led volume in the second half of the year ($68 billion) alone nearly matched full-year 2024 levels ($75 billion). 

Transaction sizes increased alongside volume. The average CV size rose in 2025 to approximately $900 million, and the number of GP-led transactions exceeding $1 billion increased to 29, materially above 21 $1 billion plus transactions in 2024. Capital availability, higher lead-investor check sizes, and increased participation from traditional LPs and evergreen vehicles supported the execution of larger transactions. 

Adoption of CVs also continues to broaden. As of 2025, nearly 80 percent of the top 100 sponsors by assets under management had completed a CV transaction. Even more notably, GP-led secondaries represented approximately 14 percent of all sponsor-backed exit volume in 2025, even as traditional M&A and IPO activity improved in the second half of the year. 

FN: Source: Dealogic estimates for sponsor-backed exit deal volume, including M&A and IPO proceeds. Percentage represents CV transaction volume (numerator) over sponsor-backed exit deal volume (denominator). 

Strategy-Level Activity and Structuring 

Buyout strategies remained the largest component of GP-led activity, representing approximately 70 percent of GP-led transaction volume. Tech, business services, industrials, and healthcare were the most active sectors within buyout transactions, accounting for over half of overall deal flow. GP-led buyout activity continued to focus on established sponsors and “trophy” assets. Single-asset CVs targeting “trophy” assets continued to gain popularity, exceeding 50% of total CV volume for the first time in 2025. 

Venture and growth GP-led transactions remained an important component of the secondary market in 2025. Activity reflected continued liquidity pressures and prolonged distribution cycles, with sponsors using GP-led processes to provide liquidity while maintaining exposure to high-conviction assets. Investor interest focused on later-stage companies and assets benefiting from secular trends, including AI adoption and cloud infrastructure. 

Credit GP-led secondaries expanded materially in 2025, with volumes more than tripling since 2024. GP-led transactions also accounted for the majority of credit secondary volume for the first time. Activity was concentrated in sponsor-backed direct lending portfolios and supported by capital from dedicated credit secondary funds, traditional LPs, and evergreen vehicles. Real assets GP-led activity also increased, particularly in energy and infrastructure, as sponsors used continuation vehicles to retain ownership of mature assets. 

Structured solutions featured prominently in GP-led transactions. Deferred purchase price mechanisms and other similar structural features were incorporated into approximately 29 percent of GP-led transaction volume in 2025, representing an increase from the prior year. 

Capital Availability and Market Participation 

Dedicated secondary capital reached a record $327 billion in 2025, reflecting a 14 percent increase from year-end 2024. When combined with capital from traditional LPs and available leverage, total secondary market capital reached approximately $477 billion. Closed-end dedicated secondary fundraising represented 18 percent of all private capital raised during the year, and three of the ten largest private equity funds closed in 2025 were secondary-focused vehicles. 

Evergreen vehicles continued to grow as a source of capital for the secondary market. In 2025, evergreen vehicles accounted for an estimated $113 billion of total capital inflows, with approximately 41 percent allocated to secondaries. These vehicles participated across LP and GP-led transactions, including continuation vehicles, diversified portfolios, and structured transactions, contributing to transaction velocity and execution capacity. 

Buyer participation also continued to broaden. While large secondary platforms remained highly active, their share of total capital deployment declined for the second consecutive year. The top-10 investors only made up 50 percent of transaction volume in 2025. Smaller-scale buyers, sector specialists, ’40-Act capital, and new entrants increased participation across transaction sizes, particularly in small- and mid-sized deals. These transactions under $250 million accounted for 41 percent of deal count and 13 percent of total volume. 

Expectations for 2026: Another Record Year 

Entering the new year, Jefferies sees the strongest structural support for continued expansion in the secondary market’s history.  

Based on transaction backlog alone, first-half 2026 volume is expected to exceed $100 billion. The firm expects continued supply of LP portfolios and GP-led transactions, supported by sustained liquidity needs, continued sponsor adoption of continuation vehicles, and a well-capitalized buyer base. 

Looking ahead, Jefferies sees a path for annual secondary market volume to approach $300 billion over the next 12 to 24 months. Jefferies also anticipates continued growth in strategy specialization among investors and advisors as the market continues to scale. With expanding participation across asset classes and investor types, secondary markets are expected to remain an active area of private capital activity in 2026. 

Venezuela: Implications for China’s Energy & U.S. Tech Rivalry

By Aniket Shah, Global Head of Washington, Sustainability & Transition Strategy

If there was any doubt, recent developments in Venezuela have put it to rest: energy security and industrial policy are back at the center of international competition. U.S. intervention in the country — home to the world’s largest oil reserves — could have significant implications for geopolitics and the US China Tech Rivalry.

Near the top of the list of affected stakeholders is China, which has historically absorbed more than half of Venezuela’s crude exports. The moment offers a useful test of how Beijing’s investments in electrification and energy diversification will shape its ability to absorb the loss of a major trading partner.

Continuing the firm’s work on US–China dynamics, Jefferies’ Sustainability and Transition team recently hosted Dr. Michal Meidan, Head of China Energy Research at the Oxford Institute for Energy Studies. She concluded that while near-term disruptions are possible, Venezuela’s practical importance to China’s over crude imports remains limited, and Beijing’s broader policy direction continues to reduce reliance on any single supplier.

This article synthesizes five key takeaways from the discussion.

1. China’s Exposure to Venezuela: Smaller Than Headline Risk Suggests

Dr. Meidan emphasized that Venezuela’s immediate impact on China’s energy and industrial policy is limited. That said, she expects broader US–China strategic and technological competition to continue intensifying. China’s exposure to Venezuela spans three main areas:

• Oil flows: While Venezuela exports more than half of its crude to China, those volumes account for only around 3 percent of China’s total oil imports. Shipments are concentrated among independent refiners, making disruptions inconvenient but manageable at the system level.

• Debt exposure: More material is Venezuela’s role in China’s oil-for-loans framework. Roughly 30 percent of Venezuelan crude production is directed to Chinese SOEs as repayment under long-standing lending arrangements. Dr. Meidan estimates that $50–60 billion has been lent to Venezuela since 2007, with oil pledged as collateral. Approximately $10 billion is believed to remain outstanding, prompting Chinese policy banks to reassess exposure amid the crisis.

• Human capital and broader investments: Chinese firms are deeply invested in Venezuela’s infrastructure. Beyond oil, investments span telecommunications, rail, ports, and other strategic assets. These exposures introduce operational risks should Chinese entities face exclusion under a new regime.

2. Short-Term Implications: Disruption, Not Dislocation

In the near term, Dr. Meidan expects operational disruption rather than systemic risk. Chinese operators may scale back production, reassess capital commitments, and review personnel safety. Financial losses are possible, but they are not existential from a national energy or industrial perspective.

3. Longer-Term Implications: Strategy Working as Intended

Over the longer term, China’s existing energy strategy — centered on diversification, strategic reserves, stockpiling, and electrification — has reduced reliance on Venezuelan supply. Brazil remains a key crude supplier, while Canada is emerging as a viable replacement source for heavy oil.

China is expected to continue hedging exposure through diversified partnerships and accelerated electrification. At the same time, uncertainty remains over whether a future Venezuelan government would honor existing RMB-denominated loan agreements.

4. The Five-Year Plan: Industrial Policy at Scale

Pending final release and approval, China’s next Five-Year Plan (5YP) signals a clear prioritization of technological innovation, including quantum technologies and next-generation manufacturing. The plan emphasizes scale, vertical integration, and rapid resource mobilization, rather than near-term efforts to resolve local government debt or real estate sector stress.

China aims to move beyond already established strengths — such as EVs and solar — into frontier technologies, with the strategic objective of consolidating its competitive position relative to the US.

• An Ecosystem Approach to Innovation: Rather than relying solely on subsidies or IP acquisition, the 5YP focuses on building vertically integrated ecosystems capable of delivering faster innovation cycles and durable cost advantages. Dr. Meidan expects execution to be uneven, but ultimately effective.

• Energy’s Role in the 5YP: Energy policy is designed to support industrial and technological expansion. Power system overcapacity is viewed positively in China, providing resilience and flexibility. Dr. Meidan expects this approach to continue.

5. The Investment Implications

Several investment-relevant themes emerge from the discussion.

First, oil will remain relevant in the near term, particularly due to petrochemical demand, even as China accelerates diversification into minerals and clean technologies. Chinese investment now spans extraction, production, and renewable installation across Latin America.

Second, foreign companies operating in Venezuela (and Latin America more broadly) face heightened uncertainty, likely driving renewed scrutiny of political risk, insurance coverage, and capital allocation.

Finally, Latin America’s strategic importance to China is increasingly anchored in critical minerals, particularly lithium, which underpins clean technology and electrification strategies.

For more insights from Jefferies’ Sustainability and Transition team, consult Jefferies Insights.

Why Is Global Capital Pouring Into MENA, India, and Korea?

As Dubai cements its role as a global capital for trade, innovation, and investment, Jefferies once again brought together leading corporates and investors from across Asia, the Middle East, and South America for its second annual GEMS (Global Emerging Markets) Conference, held November 24–25, 2025.

Following a successful debut in 2024, the conference has quickly become one of the region’s most anticipated investor gatherings, featuring one-on-one meetings and focused conversations with C-suite leaders from across emerging markets.

At the conference, Walid Armaly, Co-Head of MENA Equities at Jefferies, and Desh Peramunetilleke, Head of Quantitative Strategies, discussed how emerging markets (EMs) have evolved from a focus on foreign-exchange and commodities trading to a broader mix of manufacturing, infrastructure, consumer spending, and technology. They outlined the opportunity and risk set in these markets, the themes shaping investment, the post-pandemic rotation of capital away from China, and more.

The New Shape of Emerging Markets

Historically, EMs have not been a major part of institutional portfolios. And even with the recent surge in capital inflows, they remain underrepresented relative to their scale. “Emerging markets are 40% of the global GDP and represent about 70% of global growth, but they’re only 11% of the MSCI World Index,” Mr. Peramunetilleke explained. “This is an immense opportunity.”

Part of this opportunity comes from how EM economies have changed. “Traditionally, emerging markets have been all about currency and commodities,” he said. “But this is now changing: high-tech manufacturing, consumer spending, infrastructure.” These sectors are expanding quickly across regions, supported by stronger balance sheets, improving corporate governance, and a more sophisticated policy environment.

Capital rotation has played a central role as well. Post-pandemic, investors have diversified away from a China-dominant framework toward a broader mix of Asia and MENA. The Middle East, India, and South Korea have been key beneficiaries.

MENA’s Expanding Role in Global Portfolios

Nowhere is EMs maturation more apparent than in the Middle East. The region’s share of MSCI EM has risen steadily, from less than 2% a decade ago to roughly 7% today. As Mr. Armaly put it, “It’s become very hard to ignore… We’re seeing increased interest in the region with investors coming to visit, looking to meet companies and host reverse roadshows, and meet with exchanges. It’s been fantastic for capital inflows.”

Dubai, in particular, has emerged as a powerful magnet for businesses, talent, and capital. “We’re seeing about 1000 people move per day to Dubai to set up businesses and to live,” Mr. Armaly said. This influx has supported not only the real economy but also the development of deeper, more dynamic capital markets across the Gulf.

Structural advantages further reinforce the region’s appeal. Demographic strength, ongoing social and labor-market reforms, and improving market infrastructure all point to continued expansion. “We see, across the region … continued pick up in capital-markets activity and proactive exchanges looking to improve market structure,” Mr. Armaly explained.

Opportunities and Risks in EM Investing

Across EMs, investors are positioning around a set of long-term themes that extend beyond traditional macro drivers. In the Middle East, Mr. Peramunetilleke pointed to growing interest in the energy transition, manufacturing and relocation, and digital infrastructure. These align closely with national transformation plans, large-scale infrastructure build-outs, and investment in logistics and connectivity.

Alongside these positive themes, risks remain part of the equation. A U.S. recession would pose a headwind, and geopolitical tensions continue to shape capital flows. “Geopolitics are the biggest risk,” Mr. Peramunetilleke cautioned, though he noted that if EM corporations deliver earnings growth, “valuation is not going to be a concern.”

Other EMs to Watch: India & Korea

The post-China rotation has brought several Asian markets into sharper focus for global investors. India and Korea, in particular, have become key priorities for institutional portfolios.

“Infrastructure reforms have certainly made a big difference for India,” Mr. Peramunetilleke noted, and Korea’s exchange reforms and value-up initiatives “have made a big difference to attracting more capital flows.”

Final Thoughts: A Bullish Outlook on Emerging Markets

In the long term, both speakers expressed strong confidence in the trajectory of EMS. Earnings expectations remain healthy, deregulation is accelerating in key markets, and consumption and infrastructure spending continue to expand.

For investors evaluating opportunities in MENA specifically, Mr. Armaly offered a simple piece of advice: “Seeing is believing.” The pace of development and the scale of economic transformation underway are easiest to appreciate by visiting the region and getting on the ground.