Private credit managers with exposure to software companies recently faced investor withdrawals as concerns mounted over how artificial intelligence could disrupt parts of the sector. Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank, finds it somewhat ironic that concerns have focused primarily on private credit exposure without first questioning what similar risks could mean for private equity investors backing the same businesses. While Henriksson acknowledges that artificial intelligence represents a significant disruptive force, she argues that AI is only one of several major uncertainties currently shaping private equity markets.
“I believe this applies to investing broadly at the moment, not just private markets,” says Henriksson when discussing the current environment for private equity investing. “The amount of uncertainty stemming from geopolitical developments, politics, and AI means that, to be completely honest, none of us really know what the next 12 to 24 months look like, let alone five years from now.” While uncertainty itself is nothing new, Henriksson argues that multiple large uncertainties are emerging simultaneously. “There have always been unknowns,” she says, “but the combination of geopolitical risks, political uncertainty, and AI creates a heightened level of uncertainty in the current market environment.”
“There have always been unknowns, but the combination of geopolitical risks, political uncertainty, and AI creates a heightened level of uncertainty in the current market environment.”
Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank.
Uncertainty Clouds Fundraising and Deal Activity
According to Henriksson, this heightened uncertainty is having tangible consequences for both fundraising activity and private equity dealmaking. She believes a more meaningful recovery in fundraising and M&A activity will require at least some easing of current uncertainties, particularly from geopolitical and political developments, given that AI is likely to remain an unresolved question for years. “For fundraising activity to improve or for M&A markets to recover further, we probably need some easing of these uncertainties,” she explains. “Most logically, this would need to come from geopolitical or political developments because AI will remain an unknown for quite some time.”
“For fundraising activity to improve or for M&A markets to recover further, we probably need some easing of these uncertainties. Most logically, this would need to come from geopolitical or political developments because AI will remain an unknown for quite some time.”
Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank.
Private equity dealmaking recovered meaningfully during 2025, partly because the tariff-related shock proved shorter-lived than many initially feared. However, Henriksson argues that the recovery has once again lost momentum during early 2026 amid renewed geopolitical tensions, uncertainty surrounding the conflict involving Iran, and concerns about energy markets. “There was already a slight pickup after the post-COVID period with exceptionally high deal volumes in 2021 and 2022,” says Henriksson. “There has definitely been a hangover following that period.” Despite slower transaction activity, Henriksson continues to observe strong assets changing hands. “If you have a high-quality manager operating in attractive parts of the market and owning high-quality businesses, those deals are still getting done and investors are still able to create value.”
Why Manager Selection Matters More Than Ever
The importance of manager selection extends well beyond the current slowdown in deal activity. According to Henriksson, the end of the low-interest-rate era fundamentally changed what separates successful private equity managers from weaker ones. “Higher financing costs have shifted the emphasis away from financial engineering and much more toward operational execution and discipline,” says Henriksson, who oversees approximately €150 million allocated to private equity and private credit managers. “The current environment has really highlighted that manager selection is more crucial than ever,” she says.
“Higher financing costs have shifted the emphasis away from financial engineering and much more toward operational execution and discipline. The current environment has really highlighted that manager selection is more crucial than ever.”
Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank.
As a result, S-Bank’s due diligence process increasingly focuses on understanding how managers actually create value within portfolio companies rather than simply optimizing capital structures. “We focus much more on how managers actually grow businesses, improve operational efficiency, and create value in ways beyond simply engineering the balance sheet,” says Henriksson. This shift toward operational capabilities has become particularly important as private equity managers simultaneously navigate higher financing costs, slower exit markets, and technological disruption.
AI Creates Winners and Losers
If higher interest rates have already made life more difficult for private equity managers, rapid developments within artificial intelligence have introduced yet another layer of complexity. Henriksson believes AI is likely to increase dispersion between both managers and portfolio companies, although she cautions against broad assumptions about which businesses will ultimately benefit or suffer.
“If you look at the big picture, it is very difficult to know which companies will use AI as a tailwind and which will experience it as a headwind,” she explains. Importantly, she warns investors against assuming software companies automatically face negative outcomes simply because AI is reshaping the sector. “I wouldn’t assume every software company is going to suffer from AI, particularly because private equity owners tend to be innovative and quick to adopt new technologies.”
“There will most likely be cases where money will be lost, but there will also be many success stories where AI actually becomes part of the growth story. I don’t think this is a uniform playing field.”
Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank.
Henriksson expects outcomes to vary substantially across sectors, managers, and portfolio companies, making diversification increasingly important. “There will most likely be cases where money will be lost, but there will also be many success stories where AI actually becomes part of the growth story,” she says. “I don’t think this is a uniform playing field.” The most sensible approach remains relatively straightforward: diversify sufficiently, work with high-quality managers, and maintain discipline around manager selection.
Large Caps Versus Mid-Market
When discussing where investors may find the most attractive opportunities within private equity, Henriksson notes that uncertainty has naturally pushed many investors toward larger managers. “Large-cap managers are often viewed as a safe haven, and for understandable reasons,” she explains. “They are more established and generally have greater resources to navigate uncertainty.” This preference is reflected in deal activity as well, with large-cap transactions recovering more visibly due to ongoing mega-trends, take-private transactions, and larger companies continuing to attract significant investor attention. “It is human nature during uncertain periods to gravitate toward the most established players,” says Henriksson.
At the same time, Henriksson believes mid-market managers may ultimately offer stronger opportunities for investors capable of selecting the right managers. She points to research suggesting larger managers generally deliver more consistent outcomes, while mid-market investing offers significantly greater dispersion. “If you are able to identify the high-quality managers in mid-market, you may be able to generate stronger risk-adjusted returns,” she says. “But achieving that requires even more skill in the current environment.”
“If you are able to identify the high-quality managers in mid-market, you may be able to generate stronger risk-adjusted returns. But achieving that requires even more skill in the current environment.”
Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank.
Despite the more challenging environment, however, she remains constructive about the long-term outlook for investors capable of identifying strong managers. “The best managers will continue delivering good risk-adjusted returns over the long run,” she says. In periods of heightened uncertainty, Henriksson emphasizes that investors must remain focused on the longer-term nature of the asset class rather than short-term market noise. “You really need to understand that this is a long-term game, not something you can trade in and out of, and not something you can try to time the market with.”
According to Henriksson, investors should place greater emphasis on robust due diligence processes, independent valuations, and understanding the characteristics of illiquid assets. “Investors should understand the illiquid features of the market and not concentrate too much on the illiquidity itself, but rather focus on asset quality and manager quality instead.”
Evergreen Structures and Retail Access
Despite the inherently illiquid nature of private markets, Henriksson welcomes the continued evolution of fund structures designed to improve accessibility. As companies remain private for longer periods, she argues that investors limited solely to public markets risk missing increasingly large parts of the investable universe. “More companies are remaining private for longer periods, meaning investors limited to listed markets are naturally missing exposure to many growth opportunities and diversification sources available in private markets,” she says.
“More companies are remaining private for longer periods, meaning investors limited to listed markets are naturally missing exposure to many growth opportunities and diversification sources available in private markets.”
Annika Henriksson, Head of Private Equity and Private Credit at Finland’s fourth-largest bank, S-Bank.
While acknowledging that evergreen structures are not yet a perfect solution, Henriksson views their rise as a natural evolution rather than a problematic development. “The current evergreen trend is simply a natural stage in the development of private markets,” she says. “Every industry goes through periods of change, and evergreen structures represent the next major evolution in private markets.” Henriksson believes experimentation and innovation are healthy developments for the industry.
