If the $2.25 trillion of capital amassed by private equity firms in this year’s PEI 300 ranking – published this week – has proven anything, it is that the industry has crafted a formula that works, even during a pandemic.
It’s been increasingly important to have a multi-strategy approach. For several years now, firms in the top ranks of the PEI 300 have expanded into adjacent strategies, no longer confining themselves to raising consecutive buyout funds. As TPG chief executive Jon Winkelried noted during an interview last month with the National Association of Investment Companies: “The asset class has evolved into much more of a capital solutions mindset. You need to have multiple pools of capital to respond to opportunity.”
Blackstone, which tops this year’s list again with a five-year fundraising total of $93.2 billion, has launched over a dozen new strategies since 2018, including life sciences and growth. KKR, second in the list with a fundraising haul of $79.9 billion, has scaled its flagship funds and adjacent strategies in recent years with the addition of healthcare growth and impact, among others. CVC Capital Partners, the highest-ranked firm headquartered in Europe, jumped four places to third in this year’s ranking, buoyed by its €22 billion eighth flagship fundraise. In Asia, mega-firms such as China Merchants Group and China Everbright are proving to be one-stop shops offering dedicated PE and venture, as well as more specialist vehicles on the new economy and low-carbon investments.
Another thing that’s clear is that tech specialists made a strong showing in this year’s ranking, as companies across a variety of industries accelerated their digitisation plans due to pressures brought on by the health crisis. Thoma Bravo was the biggest mover in the top 10, leaping from 15th place last year to fifth, following a $22.8 billion haul across three funds in October. Vista Equity Partners rose from 10th to seventh place, while Silver Lake shot up 22 places to 11th (for more on how to make it into the top 10, check out our video here).
There are growing signs that growth equity could surpass buyouts as the most in-demand strategy for LPs in a decade. Of the top 10 firms in the PEI 300, half have either launched or raised capital for dedicated growth funds in the last two years. A case in point: growth equity fundraising hit a record level in the first quarter of this year – $32 billion compared with $19.2 billion in Q1 2020. LPs are tilting more towards growth than buyouts in their portfolios – we explore that further in our special report on growth capital next week – with the promise of stronger returns in fast-growing and disruptive companies.
In 2010, firms needed at least $868 million to get into the PEI 300. This year, that figure has risen nearly 80 percent to $1.6 billion. As the world of work gets set for an eventual post-covid reboot, the private equity industry is evolving – and growing – its playbook.