Private equity: shaping the future of innovation

Most innovation takes place in private. That’s to say, innovative and fast-growing companies are often held in private hands. Start-up capital may initially be sourced from friends and family, but it usually isn’t long before professional investors and private equity need to step in, taking innovation from a smart idea to a business capable of transforming sectors and societies.

According to Preqin data, global private equity (excluding venture capital) assets under management (AUM) stood at $8.6tn as of December 2024, almost 10 times what it was two decades ago.¹ Eric Deram, CEO and Managing Partner of Flexstone Partners, an affiliate of Natixis Investment Managers, believes this rate of growth is sustainable: ‘Innovation will always need funding.’

‘At Flexstone, we believe we have a role to play in fostering innovation by putting capital into that ecosystem,’ he says.

Innovation is starved of capital

Private capital is increasingly important given the deteriorating fiscal position of developed market governments, which were once key funders of innovation but have retrenched in recent years.

For instance, this risks a slowdown in critical healthcare and technology areas, which private capital needs to address. Eric says: ‘In Europe in particular, we see social care and healthcare systems under extreme pressure due to constrained budgets.’

European leaders have stressed the need for more private capital across sectors. The European Commission’s Competitiveness Compass agenda, launched in early 2025, cites the need for an extra €800bn of private capital every year until 2030² to close the funding gap with the US. Europe still relies heavily on bank financing, which is not always well suited to driving fast-paced innovation.

This creates a critical role for private markets in Europe, with private capital AUM focused on Europe ($3.4tn) standing at around a third of private capital AUM focused on the US ($9.2tn), according to Preqin data.³

The shift to renewable energy has also created a gap that governments alone cannot fill. The UK’s Net Zero Strategy, for instance, requires an additional £50bn to £60bn a year in capital investment in order to achieve net zero,⁴ with most of this coming from private capital.

Understanding the science as well as the financials

Access to private equity performance depends heavily on the ability of managers. The venture capital space, in particular, offers the potential for higher returns, but also higher risk, so successfully managing these risks requires thoughtful due diligence. ‘We need to know that the GPs truly understand the technologies underlying their investments,’ Eric says.

Flexstone looks for GPs whose teams contain more than former bankers and management consultants. As an example, the firm allocates to a successful biotech GP, whose founder has been a practicing medical doctor, a medical adviser to investment funds, and a founder of their own investment firm.

GPs must not only understand the science, but be able to judge whether the science can be successfully commercialized. Eric says: ‘You must have the right ecosystem within a firm to get potentially great financial returns.’

Uncertainty and complexity mean Big Pharma may not want to take the risk of investing in new and emerging technologies themselves. Eric says: ‘We effectively take the risks on their behalf and then will sell successful innovation to the pharma companies at a later stage. Our potential returns reflect the risks we and our investors are taking.’

Similar risks could apply to investing in AI, and Flexstone chooses to exercise caution on AI investments for now. In addition, the majority of AI development takes place in large companies, whereas Flexstone primarily targets mid caps.

‘That being said, we are convinced AI will change the world,’ Eric says. ‘There will be fantastic opportunities ahead and we will continue to bide our time.’

Home bias: supporting local innovation

Many investors choose to invest in their domestic currencies or seek to support local companies to help fill the gap in local technology infrastructure. Because of Flexstone’s global reach and presence in most developed economies, it’s able to react quickly to these requirements.

In fact, this approach comes naturally: one of the firm’s first clients 20 years ago was a Swiss institution which wanted to invest most of its mandate in Swiss companies. Employing a range of private equity structures, including primary, secondary, and co-investment strategies, Flexstone was able to fulfil the domestic-focused mandate.

Domestic mandates since then include a UK-based defined contribution pension scheme, a French-focused portfolio, and numerous US-only portfolios. ‘Private equity is so diverse that it is possible to focus a strategy on most geographies and sectors, including in emerging markets, if you have the resources to do so,’ Eric says.

What about shifting geopolitics?

It’s difficult to avoid the question about the extent to which the macroeconomic environment has an influence on investments in innovation. Eric says it’s natural for investors to be concerned about risk, but macroeconomics doesn’t change the way Flexstone invests.

Flexstone’s riposte is that innovation in particular, and private equity in general, take time to bear fruit, so most macro events have little bearing on the long-term outcome of an investment.

‘You can lose a year or two in a tough environment, but this is a long-term asset class, and if you back the right horse, it will likely come good,’ Eric says.

One particular investor worry is over ever-shorter and infrequent IPO windows. However, as a mid-market investor, Flexstone depends less on IPOs and more on companies and portfolios being sold to other private equity funds in secondary markets. These markets are still buoyant.

According to the Private Equity Q1 2025: Preqin Quarterly Update, smaller exits – primarily via secondary markets – prevailed in 2024, and this trend is continuing in 2025. Smaller deals, Preqin notes, are less reliant on debt financing and more dependent on operational improvements than on broader market factors such as interest rates.

The strength of secondaries can be seen in the numbers. According to Preqin data, the global secondaries market raised some $33.5bn during the first quarter of 2025, accounting for 30% of global private equity fundraising – the highest quarterly share on record.

Risk vs reward: it was ever thus

Investing in innovation clearly carries risks, but investing in the technology of the future can have powerful societal and financial benefits.

The time horizons are long – often longer than buyouts – so the quality of managers and the companies they invest in is paramount. At the same time, these long horizons can shelter investors against the prevailing macroeconomic environment.

‘Private equity is probably the best way to invest in innovation,’ says Eric. ‘Investors with long time horizons, a desire to improve society, and a robust risk appetite could derive significant alpha from portfolios with meaningful exposure to innovative companies.’

About
Eric Deram is the CEO & a Managing Partner at Flexstone Partners. Based in Geneva, he leads the overall strategic development of Flexstone Partners. He serves on the European Audit Committee, the Global Advisory Investment Committee, the US, European, and Asian Investment Committees, and the Compensation Committee. He promotes and supports Flexstone’s sustainability conviction and approach.

This article originally appeared in Private Equity in 2026.

_{1 https://pro.preqin.com/analysis/dryPowderAUM
2 https://ec.europa.eu/commission/presscorner/detail/da/statement_25_364
3 https://pro.preqin.com/analysis/dryPowderAUM
4 https://www.gov.uk/government/publications/green-finance-strategy/mobilising-green-investment-2023-green-finance-strategy}

_{Any securities mentioned above are for illustrative purposes only and do not constitute advice, a recommendation, or a solicitation to buy or sell. All opinions are those of the author at the time of publication and are subject to change. Past performance is not a guarantee of future returns. For Professional Investors only. All investing involves risk, including the risk of capital loss. Natixis Investment Managers is the holding company of a diverse line-up of specialized investment management and distribution entities worldwide. Services and products managed by Natixis Investment Managers are not available to all investors in all jurisdictions. Provided by Natixis Investment Managers UK Limited which is authorized and regulated by the UK Financial Conduct Authority (register no. 190258) - registered office: Natixis Investment Managers UK Limited, 4th floor, Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA, UK}

_{This is a sponsored opinion by Flexstone Partners. The views expressed are provided as of September 2025, do not constitute an endorsement, recommendation, or any other advice, and are subject to change. The following content does not necessarily reflect the views of BlackRock, Preqin, or any of its affiliates. Flexstone Partners is not affiliated with Preqin. Preqin received compensation from Flexstone Partners in exchange for publishing this content.}