Specialist Articles
March 3, 2020

The rising power of the buyout firms

Nicolas Cole

Demand for alternative assets in general, and buyouts in particular, remains very strong, with LPs eager to put more capital into the industry. The past year was one of the biggest ever for fund-raising. Investors poured $894 billion into private capital, which includes private equity, real estate, infrastructure and natural resources.

Figure 1: Buyout firms continue to manage more funds, expanding to new asset classes and launching successor funds faster

Notes: Includes 221 buyout firms that have closed more than $2.5 billion in buyout capital funds since 2000; active funds defined as those having held a final close in the seven years preceding each year; other asset classes include growth, venture capital, real estate and infrastructure; predecessor fund analysis based on fund with a predecessor fund only
Source: Preqin

A recent study analyzed 220 buyout firms, each had raised more than $2.5 billion since 2000, comparing the 2013-19 cycle with 2006-12. Winning firms were defined as those that outperformed the average growth rate of 50% by 40% – in other words, the value of the funds they raised in 2013-19 was at least 70% higher than what they closed in 2006.

Since 2006, the winners’ share of estimated buyout assets under management (AUM) grew by about 20 percentage points (see Figure 2). These outsize capital winners included Apollo, KKR, Platinum and Warburg Pincus.

Figure 2: Top-performing buyout firms’ share of capital has grown almost 20 points since 2006

Notes: Includes 133 buyout firms that have raised more than $5 billion since 2000; AUM calculated as the sum of funds raised in the past seven years; new firms started to raise after 2006
Source: Preqin

Winners were also oversubscribed by 16%, twice the level of losing firms. The entities that benefited the most from this flight to quality were investors, having increasingly favored larger firms. Buyout firms with solid track records, a clear sector strategy and a distinctive value creation story were clear winers, too. About 70% of winning firms had first or second quartile funds across 2007-14 vintages, vs. 22% for losing firms and about a quarter of the winning firms focused on a single sector, twice the share of losing firms. Consumer- and tech-focused funds did particularly well in fund-raising.

Source: Bain PE 2020

Nicolas Cole

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