New private equity firms edges KKR, Blackstone and Bain Capital as investors' favorites - report
A report published at the Pensions and Investments Online said a new group of private equity firms have waned popularity of KKR, Blackstone and Bain Capital in investors. Consultants and industry insiders reportedly said the new favorites of investors include HIG Capital, Sentinel Capital Partners LP and KPS Capital Partners LP.
One consultant, who spoke on the condition that the person remained anonymous, was cited by Pensions and Investments as saying, "Investors are less seduced by Carlyle and more by middle-market firms like KPS."
Cogent Partners managing director Todd Miller explained that investors are no longer attracted to firms who produces high-quality work or employ high-quality managers such that middle-market firms are now being considered as well.
London-based alternative investment research firm Preqin senior analst Nicholas Jelfs said private equity investors worldwide now go to Small to midmarket buyout funds. The report noted that Preqin defines small buyout funds as funds that are worth no higher than USD500 million, while middle market funds have funds that have values no higher than USD1.5 billion but no less than USD500 million. The research company's latest data from an investor survey which would be released soon showed that 66% of global institutional investors favor small to midmarket buyout funds. The majority of the investors had chosen such funds because they present the best opportunities.
Jelfs reasoned in an emailed response to Pensions and Investments Online that investors look into the long-term performance of a fund or a private equity firm. In a one-to-three year horizon, Preqin's study revealed that small- and midmarket funds outperformed the large and megabuyout funds. Median return for mega funds, or funds with over USD4.5 billion, this year ended March 31 was 14.6%, compared to 14.4% for small funds and 10.2% for midsize funds. Preqin data revealed that median returns for a five-year period for megafunds was 7.4% only, as compared with small funds at 9.4% and midsize funds at 7.7%.
Secondary market broker Setter Capital Inc President Peter McGrath however, said most investors still would go to the big firms for assurance. "Firms like Bain Capital and Blackstone are like Coca-Cola and IBM. They are safe ports of call. People have a strong belief in their funds. Still, people who want to outperform the blue-chip names will go into the middle market," Mr. McGrath said.