Small-Market Buyout Funds on Investors Radars
During the past few weeks, BHA analysts have noticed a slight increase in private equity investor interest in small-market buyout funds. Two weeks ago, 31 percent of investors had an interest in small-market buyout funds; last week that number rose to 34 percent.
One reason for this trend is that small-market buyout funds are focusing on deals that are less than $500 million, which is attractive to investors easing back into the market. Another reason is that small firms tend to rebound quickly. Small firms are usually hit hard by economic downturns because they do not have the resources to carry them through. Once the economy has turned around, however, their nimbleness helps them rebound much more quickly than their large counterparts. Considering the current economic landscape, this is making small-market buyout funds appealing to investors.
An example of such an investor is a tax-exempt institution based in the U.K. The institution is targeting both European and U.S. small-market buyout funds, concentrating on management teams aiming for capital commitments of $100 million to $500 million. Another example is a corporate pension fund based in the U.S. It is looking to invest in small- and mid-market buyout funds that have exposure to micro- and small-cap companies with $100 million to $700 million in assets. This firm invests in funds focused on the health care, energy, financial service, technology, and consumer good sectors, and recently began researching media and communication sector focused funds as well.
Mid-market funds continue to be the main interest of institutional investors; however, BHA analysts see small-market buyout funds increasing in popularity among active private equity investors.