Private Equity Under Pressure: How Geopolitics Is Redrawing Investment Strategies

by Carlotta Cardinale & Giulia Rainero

from an interview with Lorenzo Stanca

30 July, 2025

In today’s context, marked by geopolitical tensions and rapid global transformations, the role of the so-called big picture can no longer be overlooked, even by those operating in sectors traditionally focused on micro- level analysis. As Dr.Stanca highlights, although private equity has historically concentrated on the direct evaluation of individual companies, the evolution of the macroeconomic and political landscape still plays a significant role in shaping investors’ strategic decisions.

Lorenzo Stanca

Investing in Companies, Not Countries

Private equity investors typically focus on individual companies rather than broad market trends or macroeconomic shifts. Unlike public fund managers, they don’t rely on country-risk tools or macro benchmarks, as these would offer limited value in deal-by-deal decision-making. Instead, their approach is highly contextual: “We are investors, really, not in markets but in individual companies.”

This company-specific lens is particularly important during volatile periods. For instance, when evaluating businesses dependent on energy prices, caution increases. In such cases, decisions are made with “extra care,” given that costs may fluctuate significantly in the short term.

Another key distinction from public investors is the absence of pressure from daily market pricing. Since their investments are private and held for several years, they avoid short-term volatility and focus on long-term fundamentals. As the interviewee noted, they typically “hold for four to five years,” which allows them to ride out temporary macroeconomic swings while staying focused on the company’s intrinsic value. However, broader economic shifts are not entirely ignored, especially when they might impact a business’s medium- term performance.

Where Private Equity Is Looking Now

In the current climate, private equity funds are concentrating their attention on sectors that show resilience and alignment with global priorities. The most attractive industries include digital technologies, healthcare supply chains, and, perhaps most notably, defense. These sectors are seen as future-proof, both because of sustained innovation and increasing public demand.

Defense, in particular, is drawing significant interest. “Companies that operate and are exposed to demand for technology, including military applications, are viewed very positively,” the interviewee observed. As public budgets shift toward security and infrastructure, private capital is following closely, targeting firms positioned at the intersection of innovation and strategic relevance.

The Strategic Repercussions of the U.S.–China Decoupling

But while sectoral trends provide a degree of direction, global geopolitics continue to shape the operating landscape in more unpredictable ways. The progressive decoupling between the United States and China has introduced a mix of risks and opportunities for European investors. On one hand, supply chain reconfigurations have reduced reliance on China, offering advantages to firms based in Europe. On the other, rising trade

tensions and tariff uncertainty have made the U.S., once a reliable destination for growth, a far less predictable market.

“The U.S. is now in a state of great uncertainty,” the Dr.stanca noted, emphasising how geopolitical instability feeds into strategic planning. Meanwhile, China has failed to deliver on longstanding promises to open its market and continues to be hindered by import slowdowns and persistent non-tariff barriers. “The Chinese market remains difficult for many operators, headded, making it a secondary focus for firms that once viewed it as central to global expansion strategies.

When Local Rules Block Global Strategy

Beyond geopolitical trends and sector outlooks, private equity investors must also contend with the operational realities of cross-border investment controls. These issues can become highly technical but have very concrete implications, particularly when local regulations prevent capital from flowing freely within a company group.

The interviewee recalled specific difficulties faced with a Chinese subsidiary: “The Chinese subsidiary was performing very well, but we couldn’t use its cash to support the parent company. There was a kind of cash segregation at the local level.” Even in cases where formal acquisition isn’t restricted, legal and regulatory conditions can suddenly shift. “A country might not be problematic today,” he warned, “but it could become one tomorrow.”

What emerges is a complex environment where liquidity may exist within a group but be unusable across borders. This creates what he described as a “shortage of cash at the holding level,” despite solid financials in localbranches.Forprivateequityprofessionals,theabilitytomanagesuchconstraintsisnotoptional,it’sacore strategic skill. “Control over investment and cash flows is always extremely delicate for an operator.”

How Macro Instability Disrupts Exit Strategies

In recent years, macro and geopolitical turbulence has reshaped the exit landscape for private equity. What once might have been a straightforward divestment process has become entangled in a complex web of uncertainty, driven by global shocks and policy reactions.

According to the interviewee,this trend began in the immediate aftermath of the pandemic:“We’ve been talking about political instability since right after Covid.” From there, the list of destabilising forces only grew, supply chain breakdowns, the decoupling between the U.S. and China, the energy shock triggered by the war in Ukraine, and, more recently, the tightening of monetary policy in response to inflation. “Policy response to inflation came very fast,” he explained, adding that the cumulative effect has been “a significant reduction in exits.” While there were early signs of recovery, particularly in Europe during 2023 and early 2024, the resurgence of tariff tensions and uncertainty around U.S. leadership have put that progress at risk. “We’re back in a problematic area,” he observed, suggesting that a more stable U.S. administration might help ease pressure on the markets. “If the U.S. leadership stabilises, the market might respond positively.”

When Timing Fails: A Real Case of a Blocked Exit

The difficulties of exiting an investment during global instability are not just theoretical, they’re deeply practical. The interviewee shared a real case in which his firm attempted to divest from a successful asset twice, only to be blocked each time by external shocks.

The asset in question operated in the energy-intensive ceramic tile industry, a sector where Italian companies are global leaders thanks to deep design heritage and advanced production capabilities. The first attempt to sell came in late 2021–early 2022, but just as negotiations neared conclusion, the war in Ukraine broke out. The immediate spike in gas prices spooked potential buyers. “Investors were very worried,” he recalled, especially because the ceramic sector is tightly linked to global construction trends and vulnerable to energy-driven economic slowdowns.

Negotiations resumed in 2023, only to collapse again. This time, the deal fell through due to aggressive interest rate hikes and growing fears of a U.S. recession, critical, given that the American market represented a key destination for the group. “The most interested buyer pulled out,” he said, as macroeconomic pressure once again made the asset too risky.

Now, in 2025, the deal is once again in motion, but the experience left a mark. “We learned firsthand that in cyclical sectors, exits can be a real problem,” he reflected. Timing and macro context can override even the best operational performance. “You can do everything right, develop the company beautifully, but if you can’t find a buyer, the value you created is at risk.” Sometimes it’s not even about price, just market tension itself can paralyse deals. And when you do need to drop the price, “everything you’ve built risks being lost in the multiple.”

Adapting to Fragmentation — And Getting In

As the global landscape grows increasingly fragmented, private equity is adapting by shifting toward more regionally anchored strategies. While global funds still raise the most capital—especially the larger ones—, here’s growing recognition that local specialisation gives investors a real edge. “In a more fragmented world, region- and country-focused funds tend to be rewarded,” the interviewee observed, noting that “global funds have more difficulty executing strategy” in today’s complex environment. The reason is structural: fragmented markets and geopolitical tensions favour those who have deep, local teams that understand regulatory nuance and on-the-ground dynamics. Large global firms often lack the territorial rootedness needed to manage this new complexity. “Less local presence means less ability to handle fragmentation,” he explained. For students aspiring to enter this highly selective field, the message was clear: internships are everything. “The path through internships is fundamental,” he said. Given the relatively small size of the industry, breaking in depends less on mass hiring and more on being visible, available, and well-prepared when opportunities arise, especially now, when demand for new talent is growing.