One of the trends limited partners have been following over the past year is ramping up exposure to the mid-market, the thought being smaller firms use little leverage, employ more operational expertise in improving companies and produce better returns than their bigger siblings in the mega-fund world.
The space is ideal for players with expertise, who can source their own deals and avoid the auctions that make the headlines. LPs have preached since the downturn their desire to get exposure to these mid-market players who are not afraid to roll up their sleeves and get their hands dirty.
But this space may be changing, (or may have changed already) as more large firms move “down market” to find assets on which to spend their capital.
The Blackstone Group, for example, touts itself as mostly a mid-market player that occasionally does really big deals, and The Carlyle Group recently formed a small-cap investment team to target growth equity opportunities.
Perhaps the prime example of the emergence of the mid-market is Washington, DC-based trade organisation the Private Equity Council, which has changed its name and its mandate to include the mid-market. The group is now called the Private Equity Growth Capital Council, and has signed on 18 additional members straight from the mid-market.