European small-cap secondaries involve buying stakes in established European companies from existing investors, either by purchasing LP interests in older funds or by funding continuation vehicles that let a GP keep holding an asset. NORD Holding’s NKB Secondaries fund, a Luxembourg-domiciled vehicle targeting €200M, invests in this market across Western Europe, typically alongside smaller GPs it already knows well.
With the midterms pointing toward divided government in Washington, US investors have four good reasons to look harder at this part of the market.
Gridlock in Congress doesn’t end policy uncertainty, because the White House keeps the levers.
Morgan Stanley notes that whatever the results, the executive branch will keep primary influence over the policies that matter most to markets, including tariffs, foreign policy, regulation and immigration. A Democratic Congress adds a new layer of friction on top. BNY expects that legislation to limit executive actions like tariffs will face frequent vetoes, which could raise the risk of debt-ceiling and budget showdowns used as leverage for compromise. For a US-heavy portfolio, that means two more years of headline risk. European middle-market companies sit largely outside it.1,2
A Europe allocation adds currency diversification just as the dollar’s role is being questioned.
Schroders argues that after the midterms the dollar may weaken initially, as investors conclude that less fiscal stimulus means slower growth and narrower rate differentials. It also warns the dollar may provide less protection in risk-off periods than investors are used to, and recommends diversifying across regions and currencies. A euro-denominated secondaries fund provides that directly.3
Europe offers a valuation discount, and small-cap secondaries widen it.
European buyouts typically trade at lower multiples than US deals, and the market’s fragmentation makes sourcing more local and relationship-driven. That fragmentation suits a specialist like NORD, which buys from GPs it already backs. NKB’s entry multiples on its seeded deals sit roughly in the 4–6x range, versus market comparables of about 8–12x. US capital is noticing: analysts expect US participation in European PE deals to keep rising as LPs explicitly treat Europe as a priority region, given its relative valuation advantage.4,5
Secondaries deliver earlier cash in an uncertain market.
When the policy outlook is murky, buying known assets with visible performance beats funding a blind pool. Secondaries are no longer just a response to a weak exit market; they have become an established part of portfolio management across European private equity. NORD’s track record makes the point: a median of 1.7 years to reach 1.0x DPI, and six of ten investments returning capital within three years.5
The counterarguments investors should weigh
The midterms may matter less than this suggests. Morgan Stanley’s view is that the elections should have limited market impact, with long-term policy themes remaining the key drivers. The case for Europe stands on valuation and diversification, with or without an election catalyst.1
The dollar could strengthen instead. Not everyone expects weakness. Wells Fargo argues that a more hawkish Fed and elevated Treasury yields should support modest dollar appreciation through 2027, which would hurt unhedged returns on euro assets.6
Europe carries its own risks. European PE in early 2026 had to absorb a sudden geopolitical shock from the escalating Iran conflict. The secondaries market there is also less developed: the US leads in adoption and sophistication, while Europe is at an earlier, though accelerating, stage. Small-cap assets are also less liquid and depend more heavily on the GP.5
Sources
- 1. Morgan Stanley
- 2. BNY
- 3. Schroders
- 4. CVC
- 5. Ropes & Gray
- 6. Wells Fargo Advisors
For information only; not an offer to sell or a solicitation of an offer to buy any security, and not investment advice.
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