The last two decades have seen an unprecedented rise in the number of active private equity firms in the market. Since the millennium, the amount of active PE firms has shot up 189%, while PE-backed businesses have increased by a whopping 364%.
Today, both venture capital and private equity funds have a record $1 trillion in uncalled capital and the number of limited partners involved in the market is through the roof. However, with increased competition in an ever-changing private market environment, firms need to find ways to stand out if they are to secure LP commitments.
Gone are the days where private equity fund managers and investors could rely on significant returns through debt-fuelled buyouts. In a highly competitive market, fund managers who boast specialist expertise are helping firms differentiate themselves in the market in order to attract the attention of institutional investors.
Rather than simply offering a generalist approach, PE firms are increasingly focusing on achieving specific targets for their portfolio companies. Some may concentrate their efforts on helping a company to build a franchise, for example, while others may focus on aiding a portfolio company to simply increase their profitability by a certain amount.
Beyond specialisation, many firms are finding success by switching their focus to niche funds; those that exist outside the realms of traditional private equity such as debt and GP stakes. An example of this is Blackstone, who’s $7.5B fund closed last year, or Carlyle Group LP, which closed its $2.5B debt fund in early 2017. By concentrating on niche strategies, these asset management firms have managed to remain competitive despite on-going market challenges.
“As the private markets continue to mature, PE firms will need to specialise to stay competitive. From hiring fund managers with specific expertise or opening niche funds—more and more firms will likely extend their business into new strategies and market themselves as one-stop shops for institutional investors.”
https://pitchbook.com/blog/specialization-in-private-equity-buyout-funds-and-niche-investment-strategies
Jacob Wilder – Pitchbook