How TSG’s $4bn consumer fund stacks up to peers

TSG Consumer Partners closed its latest fund on its $4 billion hard-cap last week, adding firepower to a strategy that has been treated with caution in some regional markets and favoured in others.

The San Francisco-based consumer-focused manager, which began raising capital in September, raised $2.4 billion for TSG8 and $1.6 billion for TSG8 Parallel, according to filings with the Securities and Exchange Commission.

Almost $77 billion was amassed by 80 managers focused on consumer and retail, TMT, healthcare and services last year, according to PEI data.

Asia-focused consumer funds made up about 43 percent of the largest capital raises last year by value; US-focused about 46 percent and Europe 11 percent. In Asia, the rising middle class in China, India and South-East Asia has driven larger pools of capital to managers focused on tapping this opportunity.

The Carlyle Group‘s $6.55 billion haul for its fifth Asia buyout fund last June is expected to tap larger investment opportunities in the region driven by innovation, attractive demographics, and rising consumption and corporate spin-offs, the firm said at the time.

Asia-based firm Hillhouse Capital Group amassed $10.6 billion – the largest in the region’s history – for its fourth fund that will make innovation and tech-driven investments across consumer, services and healthcare, while Blackstone gathered $2.3 billion for its debut Asia fund, that will target consumer services and high-end manufacturing in China, as well as industrials and services companies in India.

According to Janet Brooks, managing director for placement firm Monument Group, investor appetite for sector-focused funds like consumer/retail is generally more muted in Europe than it is in the US because of the geographical challenges of operating as a specialist in a pan-European context as well as the mixed performance of these funds.

“Right now we see many European investors being particularly cautious in this area as a result of the turmoil in the retail space caused by the wholesale move from physical to digital together with fear of greater economic uncertainty and potentially lower consumer expenditure going forward,” she added.

Gabrielle Joseph, head of due diligence and client relationships at Rede Partners, added that there are fewer pure-play consumer funds in Europe than the US.

“In Europe consumer funds have also been facing headwinds from the well-publicised difficulties of the retail and casual dining sub-segments,” Joseph said. “We think LPs can often balk at committing to pure-play consumer funds, typically because they are worried about timing the market right and committing to what is perceived as heavily cyclical asset class.

Firms that launched US consumer-focused funds last year are targeting about $33 billion among them, according to PEI data. These include L Catterton, which is seeking $625 million for its fourth growth equity fund; Harvest Partners, which has a $3.25 billion target for its third buyout fund; and Oak Hill Capital Partners, which is eyeing $3 billion for its fifth fund.