In the private equity industry, there are giant multinational firms that boast billions in assets and there are boutique firms taking advantage of their reputational expertise in specific sectors. One school of thought will always think bigger is better. The other school of thought is that less is more. The largest investment firms offer unparalleled name recognition. The boutique firms offer supreme focus. But what about the middle?
What about the mid-sized firms with neither the billion-dollar household name nor the market segment proficiency? With over 6,000 firms to choose from, there is a sea of gray between the biggest and the boutique.
Limited partners can take their time to shop for a firm that exactly fits their needs. Bigger isn’t always better, for example, if the investor places preferential emphasis on attention and individualized communication. At the same time, certain investors might not fit into one niche or one specific sector but occupy multiple industries. These LPs are in need of differentiated strategies that anticipate and account for added value across multiple years and across multiple sectors. This is the space where successful middle-sized firms have occupied. This is where perceptive investors and experienced LPs, some who have had dealings with the biggest firms as well as boutique firms, will do their smart shopping.
It isn’t that middle-market LPs don’t care for name recognition or segmented proficiency. Rather, it is having the know-how and market understanding to find the firm that is scalable to their wants and needs—and at value.
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