This year has seen a subtle but meaningful shift underway in capital allocation: US investors are looking more favourably toward the UK and Europe. One early indicator is the $10.6 billion that flowed into European ETFs in just the first quarter of the year, nearly seven times that seen in in the preceding quarter. In a recent Bank of America survey, US and Asian allocators reported reducing plans to deploy into US hedge funds in 2025, instead increasing exposure to the UK, Europe, and the Middle East.

A few compelling arguments for this shift have emerged. First, UK and European investments, both public and private, tend to trade at lower multiples than US counterparts. Second, US investors tend to gravitate towards sectors that they are already familiar with, like infrastructure, energy transition, industrials, and defence, which are key sectors in the UK and Europe.

Capital flows don’t always translate into deep, long-term commitments, and the UK and Europe still compete with the magnetism of US markets in liquidity, innovation, and scale; however, geopolitical and economic uncertainty in the US indicates this trend may be more lasting.

UK and European small to mid-market businesses should consider approaching US investors when raising capital. With US investor interest on the rise, UK and European companies could benefit from an increase in competitive tension and potentially higher valuations. Those companies that secure US investment may have a real advantage over their competitors in the long run by gaining access to the US market and access to larger pools of capital.

The renewed US interest presents a significant opportunity for UK and European businesses and should be considered seriously by any business looking to raise capital.

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