Investor Appetite for Small to Mid-Market Buyout Funds – January 2015

by Katie Edwards

  • 27 Jan 2015
  • PE

Small to mid-cap buyout vehicles remain the most desired fund type for private equity investors. Preqin’s Investor Intelligence online service currently tracks 5,583 LPs that are active in the private equity space, with 41% stating a preference for buyout vehicles in general.

The most recent Preqin investor survey, featured in the 2015 Preqin Global Private Equity & Venture Capital Report, has revealed that the highest proportion of investors remain interested in small to mid-market buyout funds, with 49% of surveyed investors believing this fund type presents the best investment opportunities. This was followed by fund of funds (15%), venture capital (14%) and distressed debt (12%), with growth and large to mega buyout vehicles each accounting for 11% of surveyed investors’ preferences.

Throughout 2015, as shown in the chart above, investors will remain focused on small to mid-market buyout vehicles, with over half (54%) of LPs stating they will be investing in this fund type over the coming year. This fund type is followed by venture capital (26%), with fund of funds and growth both accounting for 18%, secondaries and distressed private equity both at 14%, and large to mega buyout vehicles at 12%.

An example of an LP that has recently committed to a small to mid-cap buyout vehicle is Pennsylvania Public School Employees’ Retirement System. The $51bn public pension fund has committed to Blue Point Capital Partners III, a small-cap buyout vehicle that recently held a final close at $425mn. The fund commits specifically to investment opportunities in the US, targeting the industrial, engineering, manufacturing, food, business services and medical devices industries.

Small to mid-cap buyout vehicles will remain a prominent fund type within the private equity space due to the underlying investment characteristics. Small to mid-cap buyout funds are often more volatile than the large or mega buyout vehicles, but can have attractive returns due the growth potential of the portfolio companies.

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