How ‘Smaller’ PE Funds Can Compete in Today’s Challenging Funding Market…

Its David vs. Goliath in this Market

If you are a ‘smaller’ middle-market private equity fund, how can you compete against the larger buyout shops in this funding environment? As detailed in the attached Wall Street Journal report, large institutional investors are holding back on deploying new capital.

With large institutional investors such as pension funds pausing (or rolling back) capital commitments — the competition for investor capital has only increased. In environments like this, the large ‘franchise’ funds tend to be the winner of the LP capital game.

If you are going to compete, you have to do so by outperforming them. That means you need to drive greater value creation at the portco level.

To do that, you will need outsourced help.

They Just Have More Resources.

If you are a ‘smaller’ private equity fund, and you are handling the operation of your portcos alone — you are making a mistake. That is NOT what the big buyout shops are doing. They have resources. Tons of resources. And they are putting those resources to work to help them drive performance.

You need to start doing the same.

The bigger buyout shops have skilled Operating Partners deployed at the portco level. These Partners are force multipliers that help the GP deliver performance. While the Operating Partner is helping to create value, the GP is out finding new deals and raising new investor capital.

But you are a ‘smaller’ fund. Do you have Operating Partners deployed? Most likely not.

Don’t have the resources you say? Well, your LP doesn’t care what resources you do or do not have. They just expect performance. If anything, their expectations for you are greater, since you are not necessarily the ‘known’ franchise PE fund. In other words, they potentially took a chance on you.

Therefore, You Must be More Resourceful

So, let’s summarize.

You are smaller. You are lesser known. You have fewer resources. Your LPs potentially took a gamble on you.

Does that sound like less pressure? Not to me it doesn’t.

And yet you still insist on competing on the un-level playing field created by the big buyout shops.

Perhaps it’s time to rethink that.

Level the playing field. Get some help. Bring in E78 Partners as an outsourced Operating Partner to help deliver the value creation your fund needs.

© Copyright May 2023. Marc Patterson. All Rights Reserved.

“Big Buyout Funds Stall as Pensions Hold Back” by Chris Cumming, The Wall Street Journal, 5.10.2023