PEI 300: Tech begins to wobble after strong year

Managers with a tech focus performed well again this year. However, amid a changing macroeconomic picture, can they maintain their fundraising momentum?

Last year, Private Equity International noted that technology specialists had broken into the upper reaches of the PEI 300, a status once reserved for multi-asset-class giants.

Tech firms’ position is even stronger this year. In 2021, two of the top 10 could be called growth- or tech-focused. This year, it’s four. Meanwhile, Francisco Partners, Vista, Silver Lake and Hg all rose to breach the top 20.

Thoma Bravo keeps its fifth-place position, having collected $50.3 billion across its three fund families over the past five years. While it did not reach a final close for any PE funds in the year since the last ranking, it has collected $20 billion for its 15th flagship fund so far, just shy of its $22 billion target, affiliate title Buyouts reported. Expect Thoma Bravo to be there or thereabouts next year.

The software specialist is joined by a handful of new top-10 entrants with a tech bent. General Atlantic, for instance, leapt nine places to seventh on the back of the final close of its sixth flagship fund in November, raising $7.8 billion.

Elsewhere, Clearlake Capital Group broke into the top 10, rising 14 places to eighth. Over the past 18 months, the Santa Monica-based firm has pioneered the use of single-asset continuation vehicles. It completed five GP-led deals for fast-growing software companies such as Ivanti, DigiCert and Symplr.

Meanwhile, Insight Partners jumped 18 places to claim the 10th spot. The New York-based tech investor collected $20 billion for its latest flagship fund. The firm is in market with two follow-on funds, designed to take minority stakes in existing portfolio companies sold by Insight’s Fund X and Fund XI.

The macroeconomic environment that allowed these firms to thrive is clearly changing. Tech stocks have been particularly badly hurt by the correction in public markets, which began during the first months of 2022, momentarily abated, and then went nuclear more recently. At the time of writing, the NASDAQ-100 Technology Sector Index was down 29.3 percent year-to-date. The question now is whether tech investors can continue to outperform in this environment.

Market stalemate

Right now, the market for new tech investments is at an impasse, one North American M&A adviser tells PEI. The collapse in public stocks has buyers excited about the prospect of good assets coming to market at a lower price point, but sellers are not yet willing to adjust their expectations.

However, the long-term picture still looks positive; the broader trend towards digitisation is not going into reverse any time soon. The universe of tech companies has grown so rapidly that groups can raise $20 billion or $30 billion and still account for a relatively small part of it, says Miguel Luiña, head of growth and venture at Hamilton Lane.

“There’s no one way to create a competitive advantage,” says Luiña. “You can do it through scale, through expertise, through a very narrow, focused strategy or a broad index approach and get different outcomes.” In short, as long as performance remains good, the capital is likely to keep flowing.