Updated with correction
Move over KKR, Blackstone and Bain Capital. There is another group of private equity firms edging you off of investors' must-have lists.
The new A-listers include KPS, Sentinel and H.I.G. Capital, consultants and industry insiders say.
To be sure, the big dogs are starting to close private equity funds, after a year or more of fundraising. But they are doing so after making concessions — some for the very first time — and trimming the size of their fundraising targets.
Earlier this year, KPS Capital Partners LP closed on a $3.5 billion fund — its fourth fund — in record time. It took only three months from the start of fundraising to final close. It did this despite gathering about 75% more capital than its $2 billion third fund and a fee structure that gave it lower management fees but higher carried interest — up to a whopping 30%. The typical carry fee, which reflects a percentage of the profits, has been about 20%.
In July, Sentinel Capital Partners LP held a first and final close of its $1.3 billion fund, Sentinel Partners V, well above its $1.1 billion target and the $765 million fourth fund, after only four months of fundraising. Investors in the fund include the $1.1 billion El Paso (Texas) Firemen & Policemen Pension Fund, the $25.7 billion Pennsylvania State Employees' Retirement System, Harrisburg, and $3.8 billion Houston Police Officers' Pension System.
“Investors are less seduced by Carlyle and more by middle-market firms like KPS,” said one consultant, who spoke on condition of anonymity.
Investors are looking for high-quality managers, so middle-market firms are getting some attention, said Todd Miller, Dallas-based managing director at private equity secondary market brokerage firm Cogent Partners.
Small to midmarket buyout funds are the most desired fund type by global private equity investors, said Nicholas Jelfs, senior analyst and press officer with London-based alternative investment research firm Preqin. (Preqin defines small buyout firms as those with funds of $500 million or less; middle market, funds with $501 million to $1.5 billion; large, $1.5 billion to $4.5 billion; and megabuyout, funds of more than $4.5 billion.)
Sixty-six percent of global institutional investors believe small to midmarket buyout funds now offer the best investment opportunities, compared with 15% that said large to megabuyout vehicles offered the best opportunities, according to the results of a soon-to-be released investor survey conducted this month by Preqin.