At Brookfield Asset Management’s investor day presentation in September, the largest Canadian investor in the PEI 300 communicated a strategic “tilt” in its growing PE programme.

The firm hopes to take its private equity business across the $100 billion mark with the help of growth equity. Brookfield has completed 20 growth equity transactions to date, initially in early-stage and then increasingly in late-stage opportunities, according to Sachin Shah, Brookfield’s chief investment officer. The firm is imminently staffing up to facilitate the expansion.

“Private equity is broadening to include much more growth investing,” said chief executive Bruce Flatt. The software sector is “a new infrastructure”, he added, pointing to such attributes as sticky cashflows and a broad need for digitisation in the economy.

Growth equity specialist Summit Partners gathered $8.35 billion recently for its eleventh flagship fund, Summit Partners Growth Equity Fund XI. Many players in the PE ecosystem have been gravitating towards growth. Blackstone raised $4.5 billion for its debut Blackstone Growth in March ­— the largest ever first-time growth fund. Other firms, including EQT and Permira, have launched growth equity strategies in recent years.

We’re also hearing examples of turnaround shops such as Sun Capital Management and Apollo Global Management spinout Intriva pivoting to growth. This change of direction is motivated by a glut of capital and manager expertise for the strategy, against the backdrop of a largely uninterrupted 12-year bull market, according to conversations with market sources.

There are a few reasons for growth’s newfound prominence, including the changing role of technology in people’s lives and the way covid-19 has accelerated those trends. Growth equity, historically viewed as a longer-hold strategy with slow distributions, in the last 12-24 months has seen a trend of increased return velocity thanks to its outperformance, according to Richard Hope, managing director and head of EMEA in Hamilton Lane’s global investment team.

Valuations are soaring for premier assets with covid-resistant business models. In today’s environment, growth is a necessary ingredient to make a sufficient return on investment.

“There is no such thing as a good company with a bad balance sheet,” Michael Psaros, co-founder of the New York-headquartered turnaround shop KPS Capital Partners, tells Private Equity International.

Still, trenchant macro-economic risks abound. It is unclear how the impending collapse of the Evergrande Group, the second-largest property developer in China, will impact global growth. Add in fears around inflation, a rise in interest rates, potential changes to carried interest tax treatment, and pandemic-disrupted global supply chains, and betting on growth seems more precarious as a proposition.

Fundraising for the strategy hit record levels in the first quarter of 2021 as investors channeled more money than ever into the asset class, with $70.5 billion raised, equivalent to 17 percent of all capital raised in private equity. Deal value reached a record $80 billion in North America last year. As competition elevates and GPs risk overpaying for perceived safe harbours to stagnation in the economy, the distinction between intrinsic value and growth equity investing may start to blur.