Sector specialisation a ‘no brainer’ as LPs cut ties

Dedicated teams that can leverage the reputation, infrastructure and relationships of their parent firm ‘can be quite powerful’, a conference has heard.

Private equity firms offering a range of sector-specialist funds stand to benefit as limited partners reduce the number of relationships they manage, according to panellists at an industry conference.

Speaking at the UK Private Equity Conference in London on Thursday, Ricardo Lombardi, managing director at Intermediate Capital Group, said autonomous teams that could leverage the reputation, infrastructure and relationships of their parent firms to provide LPs with exposure to certain sectors “can be quite powerful”.

“There’s clearly a movement towards big LP institutions wanting to manage fewer relationships but at the same time more capital into alternatives,” Lombardi said.

“And by definition that is going to help managers that can offer a menu they can do specifically. At the same time it doesn’t take away the very successful specialised single strategy funds that continue to do well, [but] there is an area in the middle that is getting squeezed.”

LPs representatives agreed. “Sector specialisation is an absolute no-brainer… they’re just much more compelling propositions,” Simon Moss, partner at fund of funds Hermes GPE, said at the conference.

Moss told delegates that many large GPs already boasted sector-specialist capabilities due to their internal team structure. Carlyle, for example, offers its LPs exposure to a variety of sectors, having raised dedicated funds targeting Asian buyouts, North American debt and Western European private equity.

Domestic competition in the US is driving specialist funds without a European presence to look for opportunities across the Atlantic, Private Equity International reported in September. Strictly US-based firms have so far invested €1.3 billion into European companies this year, exceeding the €1.1 billion total for last year, according to data from S&P Global Market Intelligence.