An ‘existential challenge’ is how the 2024 Draghi report on European competitiveness described the need for structural measures to improve Europe’s economic growth, putting the investments that this would require at around 5% of the region’s GDP. Paul-Francois Prouvost and Karen Azoulay highlight the role of private capital in this investment drive.
A boost of this magnitude would take investment to levels last seen in the 1960s and 70s (compare this to annual 1-2% of GDP in additional investment provided by the 1948-1951 Marshall Plan).
The Draghi report identifies three specific areas for action to reignite sustainable growth:
- Europe must profoundly refocus its collective efforts on closing the innovation gap with the US and China, especially in advanced technologies
- Bringing down energy prices while continuing to decarbonise and shift power generation to secure, low-cost clean energy sources
- Increasing security via a stronger defence-related industrial capability and reducing dependencies in areas such as critical raw materials and digital technology.
Europe’s private capital moment has arrived
Private capital is uniquely positioned to help reshape the continent’s global competitiveness by driving innovation, creating European champions, and mobilising the sizeable investments required. We believe Europe is emerging as one of the most compelling destinations for private asset investments.
In the wake of the Draghi report – and somewhat paradoxically – the Trump administration has created an additional imperative for Europe to strengthen its autonomy and competitiveness.
The case for Europe factors in a gap in market valuation between European companies and their US-listed peers and falling financing costs. But it is primarily based on a growing conviction that economic reforms, combined with a stable environment for long-term investments, pave the way for major opportunities across Europe for investors.
The Draghi report cited the need for additional investments of about €800 billion annually between now and 2030. Given that there is little fiscal headroom outside of Germany, it will be a struggle to use public funding to fill this gap. Europe already relies heavily on debt financing through the banking system, which is unlikely to unlock the required amounts even if its capital markets become more integrated.
The combination of historically massive public investment plans, structural shifts in industrial policy and geopolitical realignment is creating numerous instances for capital to be deployed in strategically important sectors. These include energy, artificial intelligence, defence and aerospace and infrastructure.
Unprecedented levels of public spending create tailwinds
Europe’s transformation is already being powered by large-scale, government-backed investment agendas. These include:
- The Clean Industrial Deal, an ambitious strategy by the European Commission aimed at transforming Europe’s industrial landscape while enhancing economic competitiveness. It will mobilise over €100 billion to speed up the roll-out of clean energy, industrial decarbonisation, and securing access to critical raw materials
- The ReArm Europe Plan/Readiness 2030 will leverage over €800 billion in spending on defence covering the defence industries, dual-use logistics, cybersecurity and supply chain resilience
- Digital Sovereignty: In February 2025 the EU launched InvestAI, an initiative to invest €200 billion – in AI, covering cloud infrastructure, semiconductors and datacentres
- Introduced in 2019, The European Green Deal is a policy initiative by the EU aimed at making the EU climate neutral by 2050. It will mobilise funding of at least €1 trillion from public and private sources over the next decade to finance the energy transition, sustainable mobility and the circular economy
- Germany’s government has set up a debt-financed special fund worth €500 billion for infrastructure investments over 12 years in transportation, energy security and the digital build-out
- Launched in May 2022, REPowerEU is aimed at mobilising €325 billion for energy efficiency, energy transportation and securing critical raw materials
- The European Chips Act foresees €43 billion in public and private investments for cybersecurity, cloud computing, digital infrastructure and semiconductors.
Added together, more than €3 trillion in public-driven capital is being mobilised. These programmes are not short-term stimulus initiatives, but conduits with long-term investment horizons designed to channel public and private capital into Europe’s real economy. Thus, they directly influence the opportunity set across private markets.
The private capital opportunity in Europe
The push to make Europe more competitive opens areas of opportunity for all private capital investment classes:
Private equity
- Industrial policy is driving corporate carve-outs, regional consolidation and platform building across sectors such as energy services, industrial automation, business-to-business tech and clean manufacturing
- Defence and energy-related suppliers are becoming more professional, scaling up their operations and expanding across borders to meet sovereign demands.
Implications for investors:
- Access to buy-and-build strategies aligned with policy-supported funding streams
- Strong demand for growth capital in sectors where scale is now strategic (e.g., mid-cap industrials)
- Increased investment opportunities as sponsors syndicate larger, policy-aligned transactions.
Infrastructure
- The Clean Industrial Deal, Green Deal and national energy transition plans form a joint roadmap to turn decarbonisation into a growth driver in Europe and help in the push for European industrial sovereignty.
Trillions of euros in infrastructure investment are needed in the coming years, including in:
- Clean and affordable energy (renewable energy, grids and storage)
- Circular economy
- Digital infra (fibre, sovereign cloud, edge data centres)
- Clean mobility (notably electric vehicle (EV) infrastructure)
- Public and social infrastructure (education, healthcare)
- Most projects benefit from a stable and mature regulatory environment, inflation-linked revenues and de-correlation from market volatility, which helps create predictable cashflows.
Implications for investors:
- Growing asset class at the heart of the EU’s plan to promote competitiveness, build sovereignty and largely decorrelate from macroeconomic uncertainties
- Sectoral diversification across energy transition and digital
- Access to high-growth platforms and brown-to-green transitions in regulated sectors
- Ability to deploy with inflation protection and long-term view on cash flows.
Why global capital is shifting towards Europe
Europe offers macroeconomic and policy stability — combined with a highly investable structural roadmap. Public plans are creating tangible project pipelines and co-investment frameworks — not just wish-lists. Private capital is explicitly sought after to complement and scale up public capital across asset classes. Deployment is aligned with long-term objectives: impact, resilience, energy security, and re-industrialisation.
In addition, Europe currently benefits from cyclical tailwinds that strengthen the investment case:
- Supportive monetary policy: With inflation moderating and interest rates stabilising, the European Central Bank is entering a more accommodative phase, helping unlock credit and supportive of capital deployment, especially in private markets
- Favourable currency diversification: For international investors, European private assets offer exposure to the euro and other currencies; this can offer diversification benefits in global portfolios
- Attractive relative valuation: Compared to their US peers, European private assets – particularly in private equity and the growth stages – offer lower entry points and compelling long-term return potential, especially in sectors benefiting from structural transformation.
Looked at overall, these factors do not just define the route to a European recovery, they spell out Europe’s re-foundation in opening a broad, investable horizon for private markets. Europe’s next private capital super cycle is unfolding and the window to capture it is open – now.
