Private equity “middle of the market” faces increasing pressure, warns Columbia Threadneedle’s Andrew Carnwath

Columbia Threadneedle Investments' head of private equity Andrew Carnwath warned that private equity is splitting in two, with larger managers offering scale and consistent but lower returns, and smaller specialist managers providing alpha. He said the middle of the market "is going to come under increasing pressure." Carnwath made the remarks at the Investment Association's Scotland Conference on 5 November, where he sat on a panel on private capital, investor demand and the regulatory environment alongside Kate Baker of HSBC Asset Management, Bremner Garner of Brookfield Asset Management and Michael Cummins of Fundguard. The panel was moderated by Namita Kain of the Investment Association.

Carnwath expects private equity to continue growing rapidly, driven by returns, diversification and access to high-growth sub-sectors that are difficult to reach through public markets. He expressed concern about capital concentration, arguing that large funds investing in more competitive, transparent markets drive down returns and disappoint investors. He said he does not believe the largest funds will accelerate the economy, pointing instead to UK SMEs as the "lifeblood" of growth. He said the lower mid-market, where his firm specialises, is "underserved in terms of capital."

On secondaries, Carnwath said LP-led sales, once seen as a sign of weakness, are increasingly used as a portfolio management tool. On GP-led continuation funds, he acknowledged sceptics but called them a positive if investors can assess opportunities and conflicts are managed. He also defended founders taking money off the table in buyouts, saying it allows them to take more risk and stimulates the next wave of companies. He backed Mansion House policies aimed at directing money into private markets, while stressing the need to focus on better investor returns.

Garner identified individual investors as the biggest opportunity, citing a UK private markets allocation of 0.1% against 6-8% for US individual investors, and said hesitancy partly reflects lingering "scar tissue from Woodford." Baker stressed that allocations should start from investor outcomes and fit within overall portfolio construction, and warned that "the dealing date does not guarantee liquidity." Garner noted liquidity structures including US interval funds guaranteeing 5% quarterly liquidity, European ELTIFs with minimum liquid asset requirements and UK LTAFs with 90-day notice periods. Carnwath said regulation has made "huge steps forward" but more remain, noting the long-term asset fund works well in DC markets but less well in wealth channels.

Kain cited the Investment Association's modernisation report, which concluded that operational infrastructure is now more important than regulatory or structural barriers to broadening access. Cummins said standardising complex deal data remains a challenge and that technology could address unstructured workflows. Carnwath also highlighted Scotland's advantages in renewable energy and ports, and said asset owners are looking beyond the US toward European private equity, where fragmentation creates inefficiency and opportunity.