Quality and operational value creation, rather than deal volume or financial engineering, are increasingly driving private equity returns as buyers grow more selective, according to CT Private Equity Trust lead manager Andrew Carnwath.
He said the private equity market has become more disciplined about pricing and long-term value than it was a few years ago, with demand remaining strong for high-quality businesses even as the wider deal market narrows.
"For us, quality isn't about buying the next unicorn," the manager said. "It's about backing established businesses with resilient cashflows, experienced management teams and clear opportunities to grow over the long term."
These businesses are often family-owned and operate in sectors with structural growth trends, and private equity can add value through active ownership, helping them to speed up their growth and expand geographically.
CT Private Equity Trust's exits in 2025 achieved an average 18% premium to their previous carrying value, with realised returns of around three times cost. That reflects continued buyer demand for well-run businesses and a disciplined approach to valuing private assets, Carnwath explained.
The manager added that operational value creation has become more central to returns than financial engineering, as financing conditions tighten and buyers grow more selective.
This involves backing companies with strong management teams and resilient end markets, then helping them grow through product development, acquisitions and international expansion.
Carnwath cited Cyberhawk, a drone-based inspection provider for energy infrastructure, and Vanda Research, a financial data business, as examples of private companies in growth areas.
"These businesses illustrate the diversity of opportunities available to long-term investors prepared to look beyond listed equities," he said.
More than half of CT Private Equity Trust's holdings are now more than three years old, which Carnwath described as a mature pipeline for future exits, while underlying portfolio companies continue to report revenue and profit growth.
"While the timing of a broader recovery remains uncertain, we believe quality will continue to be the defining factor," the manager finished. "The strongest businesses continue to attract capital and that's where we believe long-term investors should remain focused."