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Industry insiders say smaller, midmarket firms challenging large private equity companies-report

November 25
3:58 AM 2013

A new set of private equity firms are giving large buyout companies a run for their money, according to a report from Pensions & Investments, a news website that focuses on the institutional investment market. Citing consultants and industry insiders, the report said the group of A-listers that should now make it to every investor's list includes KPS, HIG Capital and Sentinel.

The report acknowledges that while big private equity players are beginning to close private equity funds after raising money for at least a year, they are doing so after making concessions and reducing their fundraising target sizes. One consultant who talked to Pensions & Investments on the condition of anonymity said, "Investors are less seduced by Carlyle and more by middle-market firms like KPS."

According to the report, KPS Capital Partners closed its fourth fund valued at USD 3.5 billion within three months. The closure was done in record time even if it gathered capital that was 75% more than its third fund worth USD 1.2 billion. The fund was also able to get capital investments even if the fee structure provided for lower management fees and higher interest rates, the report said.

Sentinel Capital Partners also held the final close of its fifth fund valued at USD 1.3 billion in July after only four months of raising funds. The funds gathered went above the company's initial target of USD 1.1 billion.

Preqin Senior Analyst and Press Officer Nicholas Jelfs said private equity investors prefer small to middle market buyout funds. Jelfs told Pensions & Investments through email that small and midmarket funds have outperformed larger buyout firms for longer time frames. For shorter time frames of one to three years, large private equity firms beat the smaller and midmarket funds. Preqin is an alternative investment research firm based in London.

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