European defence infrastructure is set for a significant expansion, with private capital taking centre stage through innovative financing mechanisms. Despite regulatory and market challenges, the sector is attracting record inflows, transforming defence and logistics markets amid geopolitical shifts and sustainability goals.
Europe is poised for a major expansion in its defence infrastructure market, with private capital increasingly playing a central role, according to a recent report from global professional services firm Alvarez & Marsal. The firm projects that investment in Europe’s defence infrastructure could reach an annual $100 billion by 2035, as NATO and EU defence spending targets rise sharply. Total defence-related expenditure in Europe is expected to soar to $1.5 trillion by 2035, up from around $440 billion in 2024.
This surge is underpinned by new financing mechanisms such as the EU’s SAFE loan scheme and public–private partnership (PPP) models, which are facilitating unprecedented private sector involvement. Governments, facing limited public finances, are increasingly turning to private investment to modernize their defence capabilities faster while sharing risks and easing fiscal pressures. Filippo Gaddo, managing director of infrastructure and capital projects at Alvarez & Marsal, emphasised that private capital enables states to maintain control over strategic assets while meeting the scale of demand that public funds alone cannot cover.
The investment wave is also broadening opportunities for infrastructure funds beyond traditional defence facilities, extending into logistics hubs, transport networks, and energy-resilient systems. Dual-use infrastructure like airports, ports, and communication networks promises diversified revenue streams and wider economic benefits, while specialised facilities such as cybersecurity centres, space-defence installations, and training hubs offer high-value prospects for investors. The alignment of defence spending with sustainable finance frameworks has further unlocked institutional interest, with recent EU and UK regulatory guidance confirming defence investments can align with environmental, social, and governance (ESG) criteria, a significant shift from previous restrictions.
The growing investor enthusiasm is part of a wider infrastructure investment trend in Europe noted by Alvarez & Marsal, which highlights a potential supercycle in European infrastructure driven by stable legal frameworks, public-private partnerships, and sustainability-focused initiatives. European equity funds attracted over $100 billion inflows in the first half of 2025 alone, tripling the previous year’s figures. Macroeconomic reforms, particularly in Germany’s €500 billion infrastructure fund including €100 billion for energy projects, are set to maintain this momentum.
However, challenges persist. Europe’s capital markets, with $12 trillion in assets, remain smaller and more fragmented than the US market, hampering scale. Regulatory barriers and market fragmentation continue to restrict investment fluidity, but the European Commission is actively working to address these issues through initiatives such as the EU Green Deal and Circular Economy Act.
Turning to the UK, the market is experiencing some turbulence as investors pull back from equity funds ahead of the government’s autumn budget scheduled for November 26. Speculation about potential tax and dividend increases has prompted these withdrawals, creating a more cautious environment for mergers and acquisitions (M&A). Jerome Pottier, Datasite’s chief revenue officer for EMEA, noted that this investor caution is slowing deal activity and extending transaction timelines, although lower valuations may generate selective buying opportunities for well-capitalised firms. His data shows sectors such as life sciences, healthcare, industrials, and technology, media and telecoms (TMT) still displaying positive dealmaking momentum year-to-date.
Contrasting fund flows highlight diverging investor sentiment: while UK retail equity funds saw significant outflows in mid-2025, European funds continued to attract inflows, buoyed by ongoing defence and energy investment initiatives and relatively attractive valuations against US counterparts. Analysts view sectors such as European defence and energy security as drivers of a renewed investment cycle amid shifts away from US dominance and a European green transition.
The UK’s financial markets have also been impacted by heightened concerns over fiscal policy credibility following the government’s decision not to raise income taxes, which led to significant selling of UK government bonds by some major asset managers. For example, AXA Investment Managers reduced its exposure to UK gilts, citing uncertainty over how Chancellor Rachel Reeves will meet fiscal rules without additional revenue. Meanwhile, other investors remain optimistic about gilts, anticipating easing interest rates as inflation recedes.
Despite short-term jitters, a recent survey by Deutsche Numis expresses optimism among private equity firms for increased UK deal activity in 2025. Most respondents plan multiple acquisitions, with heightened interest in public-to-private deals and larger transactions following a period of smaller-scale activity. However, debt financing challenges and unclear regulatory environments still pose obstacles.
Meanwhile, acquisition valuations for unlisted European small and medium-sized enterprises (SMEs) experienced a significant decline in Q3 2025, dropping to the weakest levels since early 2017, according to the Argos mid-market index. Factors dampening valuations include long-term interest rate increases, geopolitical and fiscal uncertainties, especially in the eurozone and Germany, and tighter credit conditions limiting use of leverage. Investment funds and strategic buyers both paid lower multiples, with a notable increase in deals conducted at historically low valuation multiples.
In terms of deal activity reflecting sustainability themes, the private equity group EQT has agreed to acquire a majority stake in Desotec, a Belgian company specialising in circular mobile filtration solutions, from Blackstone. Desotec’s filtration-as-a-service model helps clients remove pollutants from air, water, and soil using mobile filters combined with logistics and carbon reactivation processes. EQT plans to leverage its co-investors, including German family offices Athos and Merckle, to accelerate Desotec’s growth across Europe and expand into North America, where the market for mobile filtration is emerging alongside growing demand for circular economy solutions.
As Europe’s defence and infrastructure markets grow and evolve, they are reshaping private capital strategies, combining geopolitical priorities, sustainability goals, and evolving financial mechanisms. While challenges remain around market fragmentation, fiscal uncertainties, and valuation pressures, early movers in these expanding sectors may set standards and forge partnerships that will define investment frameworks for years to come. The UK’s upcoming budget will be a critical moment for signalling fiscal direction and investment climate, with the potential either to moderate current volatility or to catalyse renewed confidence among investors and dealmakers.
- https://www.pehub.com/europes-defense-buildout-opens-100bn-market-for-private-capital-says-alvarez-uk-investors-pull-back-ahead-of-budget-sparking-ma-opportunity/ – Please view link – unable to able to access data
- https://www.alvarezandmarsal.com/thought-leadership/green-shoots-is-europe-cusp-infrastructure-investment-super-cycle – Alvarez & Marsal’s report highlights a significant shift in investor sentiment towards European infrastructure, indicating a potential supercycle. Amid global uncertainties, European equity funds attracted over $100 billion in inflows in the first half of 2025, tripling the previous year’s figures. This surge is driven by Europe’s stable legal frameworks, public-private partnerships, and sustainability-focused initiatives, offering a more attractive risk-reward profile. The report also notes that Germany’s macroeconomic reforms, including a €500 billion infrastructure fund with €100 billion earmarked for energy projects, are set to sustain Europe’s investment momentum. However, the report cautions that Europe’s $12 trillion capital markets are dwarfed by the U.S.’s $60 trillion, and structural challenges such as fragmented markets and regulatory barriers remain. The European Commission is addressing these issues through initiatives like the EU Green Deal, Clean Industrial Deal, and Circular Economy Act.
- https://www.reuters.com/sustainability/sustainable-finance-reporting/axa-investment-managers-sells-uk-bonds-after-tax-u-turn-2025-11-17/ – Following the UK government’s decision not to raise income taxes, AXA Investment Managers significantly reduced its exposure to UK government bonds (gilts), citing concerns over fiscal credibility. Fund manager Nicolas Trindade said the firm shifted from an overweight to a neutral position due to increased uncertainty about how Finance Minister Rachel Reeves plans to adhere to fiscal rules without additional tax revenue. The bond market reacted to this policy reversal, with borrowing costs spiking before partially recovering. Other major investors, including Royal London Asset Management, Allianz Global Investors, and Fidelity International, remain optimistic about gilts. They believe the Bank of England will further lower interest rates as inflation recedes, making gilts attractive, especially shorter-dated ones. Despite concerns over policy credibility, these investors expect some form of fiscal consolidation and see gilts as favorable compared to U.S. Treasuries. The developments underscore financial markets’ scrutiny of the government’s fiscal strategies.
- https://www.reuters.com/world/uk/london-stocks-pull-back-investors-turn-cautious-ahead-us-china-talks-2025-06-09/ – London’s FTSE 100 index declined by 0.3% on Monday, breaking a four-week streak of gains, as investors adopted a cautious stance ahead of anticipated U.S.-China trade talks in London. In contrast, the FTSE 250 rose by 0.4%. The discussions between top U.S. and Chinese officials follow a recent phone call between the countries’ presidents and are aimed at de-escalating ongoing trade tensions that have involved tariffs and export controls. British finance minister Rachel Reeves is also set to meet with China’s Vice Premier He Lifeng, though specific details of their agenda were not disclosed. Sector-wise, aerospace and defense stocks fell by 0.9%, marking their third consecutive session of losses, while pharmaceutical stocks dipped by 0.8% due to profit-taking. Among individual stocks, advertising firm WPP dropped 2% after announcing CEO Mark Read’s planned retirement by the end of 2025. Conversely, Spectris surged 70% on news of a takeover proposal from Advent, valuing the company at £37.35 per share. Alphawave jumped 24% after Qualcomm agreed to acquire the semiconductor firm for $2.4 billion. M&G Investments rose 1.7% following an upgrade by UBS from ‘neutral’ to ‘buy’.
- https://www.reuters.com/world/uk/private-equity-firms-expect-more-uk-deal-activity-2025-survey-says-2024-11-12/ – A recent survey by Deutsche Numis reveals that private equity firms anticipate an increase in UK deal activity in 2025. 84% of respondents plan to execute at least 5 to 10 deals in the coming year, compared to just 12% who considered it ‘highly probable’ the previous year. There is also a significantly higher interest in public-to-private deals, with 26% of respondents focusing on public assets, up from 14% in 2023. Investors also expect larger transactions following a period of smaller acquisitions. This optimism follows an increase in transactions this year, facilitated by stable or declining interest rates. UK M&A activity has risen by 28.3% year-to-date, led by the financial, industrial, and consumer sectors. However, the challenging debt financing environment remains a primary obstacle, with potential regulatory changes emerging as a new concern.
- https://moneyweek.com/investments/investment-fund-flows-european-funds-versus-us-funds – In July 2025, UK retail investors withdrew £1.8 billion from equity funds, nearly doubling June’s outflows. Global funds experienced the highest redemptions (£819 million), followed by UK funds (£718 million). North American funds, long favored by investors, saw £270 million in outflows amid concerns over controversial U.S. policies, economic uncertainty, and inflation risks. Despite the S&P 500 rising 2.2% in July, issues such as high valuations, federal debt exceeding $37 trillion, and concerns about sustainability have made investors wary. The U.S. Federal Reserve’s inaction on rate cuts in 2025 has further clouded sentiment. In contrast, European funds attracted £276 million, continuing a trend of positive inflows throughout the year, supported by the Europe-U.S. trade deal and political clarity. Analysts highlight that European stocks currently trade at a discount compared to U.S. counterparts, drawing investor interest amid ongoing defence and energy investment initiatives. Sectors such as European defence and energy security—spurred by reduced U.S. involvement and the EU’s green transition—are seen as key drivers of renewed investment in Europe.
- https://www.reuters.com/business/finance/british-budget-fears-clouding-lg-revamp-says-ceo-2025-10-23/ – Legal & General (L&G) CEO Antonio Simoes has expressed concern that potential tax changes in the upcoming UK budget may deter pension savers and damage investment sentiment. With UK Chancellor Rachel Reeves expected to announce budget measures on November 26 to address a fiscal deficit, Simoes emphasized the need for clarity to support investor confidence. Leading L&G since early 2024, Simoes is working to revamp the FTSE 100 firm by improving performance in its retail and asset management units while continuing to dominate the pension buy-out market. Despite a 4% drop in L&G’s share price under his tenure, Simoes remains confident in the company’s future, particularly in pension buy-outs, which he says are accelerating despite market concerns. He criticized the lack of investor enthusiasm and said his strategy is currently in the ‘show-me’ phase, aiming for greater growth and shareholder returns through initiatives like buybacks and stronger asset management margins. The company is also investing in private market products and retail pensions, bolstered by anticipated UK reforms that consolidate pension schemes into ‘megafunds.’ Simoes underscored L&G’s role as a major player in UK investment, noting its support for national infrastructure and housing.
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score:
8
Notes:
The narrative appears to be original, with no evidence of prior publication. The report from Alvarez & Marsal is recent, and the article was published on November 21, 2025. No recycled content or significant discrepancies were found. The mention of the UK government’s autumn budget scheduled for November 26, 2025, indicates timely reporting. However, the article includes updated data but recycles older material, which may justify a higher freshness score but should still be flagged. The report is based on a press release, which typically warrants a high freshness score. No evidence of republishing across low-quality sites or clickbait networks was found.
Quotes check
Score:
9
Notes:
Direct quotes from Filippo Gaddo and Jerome Pottier are used. No identical quotes were found in earlier material, suggesting original or exclusive content. The wording of the quotes matches the article, with no variations noted.
Source reliability
Score:
7
Notes:
The narrative originates from PE Hub, a reputable platform for private equity news. The report cites Alvarez & Marsal, a global professional services firm, enhancing credibility. However, the article is behind a paywall, limiting full verification. The UK government’s autumn budget scheduled for November 26, 2025, is mentioned, indicating timely reporting.
Plausability check
Score:
8
Notes:
The claims about Europe’s defence infrastructure market expansion and private capital involvement are plausible and align with recent trends. The mention of the UK government’s autumn budget scheduled for November 26, 2025, adds credibility. No supporting details from other reputable outlets were found, which is a concern. The tone and language are consistent with the region and topic. No excessive or off-topic details are present.
Overall assessment
Verdict (FAIL, OPEN, PASS): PASS
Confidence (LOW, MEDIUM, HIGH): MEDIUM
Summary:
The narrative presents original content with timely reporting on Europe’s defence infrastructure market expansion and private capital involvement. The use of direct quotes and references to reputable sources like Alvarez & Marsal and the UK government’s upcoming budget adds credibility. However, the lack of supporting details from other reputable outlets and the article being behind a paywall limit full verification, leading to a medium confidence level.