GPs, LPs flock to sector specialization in wake of lock down, GTCR teams up with execs to form healthcare platform

Debating specialist funds versus generalists

Morning!

Hope your week is going well. There’s so much going on I barely know where to start! Whether it’s deals, fundraising or (my fav) secondaries, the industry is sort of like my 7-year-old after eating a big slice of cake.

Not sure if you’ve checked out Bain & Co’s global private equity study, but as usual, it’s packed full of great insight. Something that struck a chord with me is an acceleration in sector specialization, a trend we’ve seen for a while but that will likely be shoved forward by the pandemic shutdown and ensuing economic chaos.

From our view, we’ve seen many more specialist funds, especially around tech and healthcare, but also around business services and industrials. Much first time fundraising involves specialization of some sort. A recent example of this is Patient Square Capital, the new firm formed by ex-KKR healthcare chief Jim Momtazee, which could end up raising $3 billion for its debut effort.

The concern around specialization is the potential outsized risk of committing capital into one sector, if that sector happens to melt down, like certain segments of retail. But that view is too simplistic, in that sector specialization usually narrows into sub-sector focus, providing diversification even within a given sector. Also, the recent market uncertainty is also what’s driving more interest in sector specialists, according to the report.

“Firms need in-depth intelligence on how the recovery will unfold in a given sector and where the ground has shifted,” the report said. Revenue generation, customer expectations, innovation all potentially have changed. “The firms that can spot change first and build those insights into the PE value chain will have a distinct advantage in the post-covid future.”

The numbers: Buyout funds held 41 percent of global PE assets under management in 2020, down from 62 percent in 2010, the report said. Other strategies like growth, venture and distressed took a great share of AUM by the end of last year.

And within the buyout category, generalist funds have been losing share to specialist managers. The share of capital raised for the classic buyout fund (as Bain & Co names it) slipped to 56 percent at the end of 2020, from 80 percent in 2013.

What do you think about specialist funds vs generalists? Hit me up at cwitkowsky@buyoutsinsider.com.