Cambridge Associates thinks the sector of private equity known as “growth equity” is ready for prime time.
On Aug. 7, the Boston-based consulting and research firm announced that growth equity — not to be confused with the public equity strategy — has matured enough to warrant its own index.
Cambridge defines growth equity investments as minority stakes that use little or no leverage in companies with more than 10% earnings before interest, taxes, depreciation and amortization. Although that might sound a lot like venture capital, Cambridge executives say growth equity fits between late-stage venture capital and leveraged buyout investments.
Just 6% of the managers represented in the index have both venture capital and growth equity funds, said Frank Lentini, Cambridge spokesman, in an e-mail.
“While growth equity shares some characteristics with other private investments, its potential appeal clearly derives from more than just "splitting the difference'” between venture capital and private equity, Peter Mooradian said in a news release. Mr. Mooradian is managing director and senior venture capital research consultant at Cambridge Associates and co-author of the commentary “Growth Equity is All Grown Up.”