Growth equity, specifically growth-oriented technology investments, was a big story in private equity this year.
PE heavyweights Blackstone and Permira are among managers who jumped on the growth investing bandwagon. Blackstone Growth, which focuses on fast-growing companies, has closed two deals and brought in Jon Korngold to lead the unit this year. London-headquartered Permira raised €1.5 billion for its debut growth opportunities fund in June and will invest in Europe as well as the US and Asia.
Providence Equity Partners, through its Strategic Growth unit, launched its debut Europe-focused growth fund this year seeking €750 million, while New York-based Energy Impact Partners set up outposts in London and Munich to make more investments of between €10 million and €35 million in fast-growing European companies. French investment firm Eurazeo is set to launch its third growth fund targeting €1 billion, chief executive Virginie Morgon said during its half-year earnings call in July.
Investor appetite for growth investments has picked up in the last year in anticipation of a market correction, Karl Adam, a managing director at global placement firm Monument Group told Private Equity International.
“Investing in growth-focused funds is not only a fair-weather strategy. Companies that are growing top-line 30 percent to 50 percent – provided these are high-quality companies and providing an important good or service – will generally continue to grow during a recession. And for investors, they’ll probably end up okay by investing in those companies,” Adam said.
Growth equity was the second most sought-after strategy after buyouts in the first three quarters of this year, according to PEI data. Growth fundraising has increased annually in recent years and made up 22 percent of the $296.5 billion raised as of end-September, double the figure in the equivalent period in 2018.
Some are expecting growth capital to become as large as buyouts within one decade.
“There’s this gap in the market and the industry is running at it from all three directions to fill the gap,” Elias Korosis, a partner at Hermes GPE, told PEI. “The existing growth equity shops are getting bigger; the successful venture guys increasingly want to play in this space and raise growth funds; and a number of buyout shops are raising growth funds. Everyone wants to come into this space.”
New sources of capital are also pouring in. British Business Investments, a subsidiary of the UK government’s economic development bank the British Business Bank, rolled out its managed funds programme last year to seed fund of funds managers looking to invest more in UK venture and growth capital. The MFP made its first investment – €100 million in San Francisco-based manager Top Tier Capital Partners – in September as part of the £500 million ($658 million; €595 million) it seeks to deploy by 2020.