With record amounts of capital being committed to private equity funds in 2017, general partners have branched out into other strategies and geographies to ensure this money is put to work.
“LPs often don’t want fund sizes to keep increasing, but do want to increase their capital allocations,” Adam Turtle, founding partner of placement agent Rede Partners, tells Private Equity International. “[Likewise] managers don’t always want to increase fund size but they do want to show teams that they’re growing.”
Credit where it is due
Private credit has been among the most common routes for strategic expansions this year.
In August Chicago-based Thoma Bravo hired Jack Le Roy from Summit Partners amid plans to raise $750 million for the strategy. Texas-based The Sterling Group is raising its initial private credit vehicle with a target of between $200 million to $250 million, sister publication Private Debt Investor reported in August.
“As LPs seek to make their fund portfolios more manageable, they are writing bigger cheques to fewer groups, making the creation of one-stop-shopping platforms more appealing,” says Antoine Dréan, chairman of advisory firm and intermediary Triago.
There were 23 first-time corporate credit funds in market as of 12 December, targeting at least $8.7 billion, according to PEI data.
Beyond the sea
GPs also began looking further abroad for opportunities in 2017.
Permira Advisers, one of Europe’s biggest private equity firms, was seeking $1.5 billion for its debut Asia-focused vehicle, PEI reported in November. Chinese private equity giant Citic PE appointed Réal Desrochers, former head of private equity at California Public Employees’ Retirement System, to lead the firm’s expansion in North America.
“We are starting to see Asian GPs – mainly from China where there are some huge firms – setting up teams in Europe and the US,” Dréan says.
“This trend is likely to amplify considerably over the next couple of years, given the size and ambitions of the largest Asian funds. I wouldn’t be surprised if we see a mega firm from China acquire a group or groups in either the US or Europe over the coming year.”
Strategic mergers and acquisitions are an “increasingly common” means of achieving broader geographic presence, Dréan notes. Notable examples include Paris-based Eurazeo’s purchase of a 30 percent stake in New York-headquartered Rhône Group in November.
The French firm is also understood to be in discussions over an investment into pan-European fund manager Idinvest Partners, as reported by French publication Les Echoes.
Finding a niche
Many firms have launched sector-specific funds in order to differentiate themselves from the competition, with healthcare and technology vehicles among the most popular areas.
Hong Kong-based private equity firm China Everbright and venture capital firm Walden International are seeking $500 million for their new private equity vehicle focused on the semiconductor industry. Apax Partners has also raised at least $1 billion for a vehicle targeting minority stakes and buyout deals in high-growth software, internet and tech-enabled services companies globally.
Other firms are looking closer to home for new opportunities, instead turning their attention to different segments of the market.
In July, Apax Partners MidMarket acquired French small cap specialist EPF Partners to target deals below its traditional sweet-spot of companies with enterprise values exceeding €100 million. Partners Group has shifted its investment focus to platform deals amid concerns that today’s “challenging” market could undermine future valuations.
Like a fine wine
This year also saw the continuation of the trend of firms looking at long-term capital.
In November Vista Private Equity appointed Burke Norton, former executive vice-president at Expedia, as co-head of perennial investing amid plans to launch a ‘long-life’ fund. Meanwhile, Bain Capital spin-out Core Equity Holdings raised €1 billion for its debut long-term fund in September.
More than one quarter of private equity professionals believe long-life funds will grow in popularity over the next five years, according to Intertrust’s Private Equity Market 2017 report.