If the latest fundraising numbers are any indication, the new buyout cycle taking hold will be much more geared toward the middle market, particularly on the lower end. Compared to years past, the latest crop of MM funds accounts for a larger percentage of fund closings by count. Through August 1, funds between $100 million and $500 million made up almost half (49.7%) of all 2017 fund closings; that percentage was closer to a third (35%) in 2014 by count. The headlines will always pay more attention to the largest PE funds, which represent an unusual 50% of total capital raised so far this year, but behind the scenes, there seems to be a big shift in LP interest.

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Buyout Cycle Middle Market

Aside from PitchBook’s numbers, an investor survey done by placement agent Probitas Partners found very positive sentiment toward US middle-market funds. Asked which sectors or strategies in the middle market were most appealing, 81% of respondents cited funds focused on operational improvements (up from 61% last year). Another 73% cited middle-market funds focused on buy-and-build strategies, while 51% said funds focused on single industries were attractive. Those cues shed light on the increasing number of MM funds this year relative to the overall PE market—particularly at the upper end, where LP investment opportunities are limited. As the newest buyout cycle begins in earnest, it appears the next five to seven years will see an even more pronounced shift toward the middle market, even if mega-deals steal the headlines.
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Note: This column was originally published in The Lead Left.

Download the 2017 PE & VC Fundraising Report here.

Article by Alex Lykken, PitchBook