A recent study by Probitas Partners surveyed 98 institutional investors in efforts to uncover changing private equity industry trends between 2007 and 2018. In 2017, the top five private equity sectors garnering attention from institutional investors were U.S. middle-market buyouts, with 49% of institutional investors targeting the sector, followed by European middle-market buyouts at 42%, U.S. venture capital at 34%, distressed debt at 30% and Asian funds at 25%.
A decade plus later, 75% of institutional investors indicate they are targeting U.S. middle-market buyouts, consisting of deals between $500 million and $2.5 billion, followed by 58% for U.S. small-market buyouts, consisting of deals less than $500 million. U.S. growth capital funds joined the top five with 53% of institutional investors targeting the sector. European middle market buyouts in the Pan-European region attracted 52% of investors while European middle market buyouts with a country or region focus made the list at 46%.
While middle-market buyout funds remain the most popular among investors over the decade, a shift in focus from venture capital funds to growth equity has been significant. Interest in VC funds decreased after three straight years of growth, while growth capital and sector specific funds such as tech and healthcare benefited from a boom.
As the industry shifts, VCs are quickly resembling private hedge funds, investing larger amounts in much later stage pre-IPO companies instead of betting on higher risk startups. Growth equity investors, seeking out more mature targets, have a greater focused on companies that are looking to expand, enter new markets, restructure operations, invest in R&D, new product development and other growth initiatives without losing control of their businesses.
