Hefty asset prices mean that "buying smart" is not enough to keep private equity firms safe, the £54bn investment manager Partners Group has warned.
The firm believes that pricing multiples – the amount a company is bought or sold for, compared to its underlying earnings – are reaching near record levels, and is predicting that this will soon contract.
Partners Group, which owns UK assets such as Key Retirement Group and software company Civica, added that it would be holding back from the mainstream buyout scene to focus on particular sectors where it believes it can "proactively create value".
"It is absolutely true that we live in a highly priced environment and market valuations have gone up," Partners Group managing director Bilge Ogut told City A.M.
"When you've been part of this industry for a long time, you know that the market ebbs and flows. This does have an influence in terms of how you amend your strategy but at the end of the day, it's all about figuring out trends which will lead to earnings growth."
According to Ogut, although the UK is facing uncertainty from Brexit it may still be able to offer some attractive opportunities.
"We don't have the top-down view on the UK and Brexit. We analyse the businesses from an overall macroeconomic picture, and there are many sectors of the UK which we believe are relatively insulated from changes that Brexit might trigger," she said.
Particularly interesting trends include digitalisation, from streamlining business processes to providing better insight through analytics, and clean energy technology. In business service outsourcing, innovative services are being invented to offer improved services at reduced costs.
"The UK traditionally has been a pretty open market in terms of human capital accumulation, and I think there is a lot of expertise in the market," Ogut added.