PEI 300 - The biggest private equity firms

From software to human resource technology, fintech and artificial intelligence, investors are paying attention and snapping up companies that have got long years of investment cycles ahead of them.

Thoma Bravo (8) raised the largest fund ever for enterprise software companies in January, amassing $12.6 billion against a $9 billion target for its 13th flagship vehicle. In April last year it collected $2.4 billion for its Discover II fund, which will make smaller investments in mid-market software companies.

Silver Lake (20), another large-scale tech investor, and San Francisco’s Vista Equity Partners (14) gathered an aggregate $34.8 billion in the five-year period to March 2019.

New York-based Thrive Capital (188) – founded by Josh Kushner, brother of US President Donald Trump’s son-in-law and advisor Jared Kushner – was one of the biggest climbers this year, rising 103 spots in 2018 on the back of a $1 billion raise for its sixth fund focused on internet and software investments in North America and Latin America. The firm counts collaboration tool Slack and direct-to-consumer beauty company Glossier among its portfolio companies.

San Francisco-based Matrix Partners (160), which has backed virtual reality company Oculus and question-and-answer website Quora, jumped 81 spots. The firm has been steadily growing its China and India pool in recent years, raising more than $2 billion for the markets since 2014.

Two notable Chinese firms that rose to this part of the list are Shanghai-based Morningside Venture Capital (189) and Beijing-based Gaorong Capital (193). Morningside, founded by Hong Kong’s Chan family in the late 1980s and active in AI and medical devices, moved up 30 places. TMT-focused Gaorong collected $500 million for its fourth flagship fund last year and has backed social retail start-up Beidian and coffee chain Coffee Box.

Outperformance is feeding investor appetite. Data from Cambridge Associates show private equity-backed technology investment delivered the highest returns (20.6 percent) of all sectors in the first half of 2018.

“Private equity funds have made a calculated bet on overweighting technology, which has paid off,” Nicolas Schellenberg, head of EMEA PE & VC Research at Cambridge Associates, said in a statement accompanying the report.

“That outperformance is not the result of luck or chance.”

That outperformance is, naturally, attracting generalist managers, who have been capitalising on the tech boom by launching smaller dedicated funds – sometimes labelled “growth” vehicles – which invest smaller equity cheques.

KKR (3), CVC Capital Partners (4) and Apax Partners (15) have all raised such funds. In January, Carlyle Group (2) closed its fourth Europe Technology Partners fund on its €1.35 billion hard-cap, more than twice the amount raised for its predecessor. This fund has ratcheted carried interest, charging 20 percent carry until it returns 2.25x cost to limited partners, at which point it will jump to 25 percent.

Carlyle’s head of investor relations Michael Arpey said the terms are “consistent with what other top-performing technology funds have received”.