Specialties among Megafunds
I tried to search for this all over the internet but wasn't able to find anything recent. Are there any particular industries/specialties that some megafunds are known for? i.e. Silver Lake is strictly tech, Ares/Oaktree are more on the distressed side, but I wanted to know what are the core differences between the larger funds like TPG, KKR, Carlyle, Apollo, Blackstone, LGP, etc. I'm not asking about culture since I'm guessing it's pretty similar across the firms - the question is whether any of these firms are known to invest more in a particular sector (i.e. I think Carlyle is known to have a focus in aero/defence given its HQ'd in DC)?
Thanks
anyone know?
Short answer, there are not many core differences between the larger funds. Once a strategy has led to a successful investment, other firms try to replicate that strategy. However, certain funds have had significant success in particular "nichey" sectors and therefore continue to invest in those sectors. Carlyle is a good example of that with A&D and they continue to invest in cybersecurity. I don't know that TPG, KKR, Apollo or Blackstone has ever had an A&D investment but I'm pretty sure most or all of them have a TMT buyout practice where there is some overlap with A&D. TPG did a fairly rare pharma deal with Par Pharmaceuticals and I think that is the only pure pharma deal I've seen any of those big 5 do.
Great point re replication. Besides the A&D point you made, I'd also point out that Carlyle and KKR are much bigger than TPG. TPG has a few investing platforms (core PE, growth capital, etc), but is basically a large, well established PE investor. Carlyle and KKR are publicly-traded mega-investment corps that started with PE but have since diversified into other asset classes. PE is still an important part of what they do, and their PE investment teams / strategies are comparable to TPG.
Besides vertical niches and some variation in investment strategy (eg distressed), there is not much diversification/competitive differentiation in PE, which is one of the reasons returns in general are falling. The barrier to entry is the ability to raise money, which is not as big as it used to be especially in the middle market.
The larger firms differentiate via scale (they can target deals that are too big for other players, their brands attract off-market deals, and they are better at sourcing human capital).
Unfortunately for the larger PE firms (eg Blackstone, KKR, TPG), activist investors and hedge funds have cut into their ability to pick off low-hanging fruit public companies like they used to in 80s and 90s.
Also, today business owners are almost universally aware of PE and the need to run a process. Pure proprietary deals are few and far between.
I was asking because i was wondering how people decide which megafunds to recruit for - this helped answer that question a bit. Thanks!
Whichever one will take you - is the correct answer.
Significant differentiation bw. Apollo and rest. Apollo buys medium to low quality at significant scale, which is unique (e.g. Rackspace). Carlyle strong in gov focused end-markets. KKR/TPG/Bx probably a bit similar. Another bucket has HF/Advent/CVC/Bain who probably compete with each other more often for deals given their strategy is pay high multiples for market leaders / higher quality deals. Not sure who CDR competes with (platinum? but they're smaller) as they generally have strategy of embracing operational complexity at scale (e.g. American greetings)
Very helpful! Thanks
This is much more accurate than the above. Lumping all the funds together as @Draper Specter and Co." did is misleading. Apollo KKR. Not at all.
I'll expand by saying that if there was a spectrum for operational involvement by investment professionals, Bain would be on the most involved side, then Apollo, then BX, then KKR. Someone correct me if I'm wrong, but KKR financially engineers their transactions and, if anything, then use their internal consulting team to do all the portfolio management. It's much more execution. LGP is similar to KKR in that they buy blue-chip assets and are relatively hands-off. Would also put Warburg here.
Also, I think CDR is on par with WCAS and HF. At least in my head I usually group them together. Definitely, absolutely, positively not Platinum. Platinum is a much different animal. Can go into them more in depth.
Finally, I'll second that Apollo is different. Maybe I'm drinking the Kool Aid, but there's a reason they have the best returns, pay the most/near the top, and leave an impression. Their mandate is so broad it's nuts. This plus super lean investment teams is why their people are paid so much. And why they work so hard.
They are paid the most.
You included both Apollo and KKR in your ranking of firms who focus on operational improvement, but you say they are completely different? Obviously the fact that they both focus on operational improvement is a core similarity. Furthermore I don’t think operational improvement is as big a lever for returns as it was in the past. The 80’s era corporate jets and CEO perks don’t really exist in corporations today. So certainly, on a comparative basis, PE shops can’t do that much to cut costs as companies are run pretty leanly these days (obviously there are always exceptions).
I will say that Apollo WAS unique in the comfort level of the senior guys with the junk markets. All the guys came out of DBL and worked under Mike Milken. This allowed them to develop the wildly successful distressed-for-control strategy. However, as I pointed out above, the other big shops are now open to doing those kind of deals as well. This was the basis for my saying that there are not many core differences.
What about the European megafunds? CVC, Cinven, Apax, etc?
Would be curious to know as well...
Tbd
At nihil quia consequatur exercitationem autem amet eos. Itaque sit sit blanditiis quam nihil odit fugit. Dolorem consequatur nobis a dolorem ipsum reiciendis. Sunt facilis dignissimos vero nesciunt libero. Similique accusamus qui aut quidem. Cupiditate illo velit quis ut accusantium dolorem. Sunt voluptatem quo tempora repellendus.
Tenetur eos ab recusandae aspernatur nulla sit eum enim. Sit ex et eaque dolor dolor ut. Id in odit velit et sint. Quo et iste voluptas voluptatem quas repellendus laboriosam.
Aperiam et ad nobis nostrum. Architecto voluptas qui assumenda quia. Fugit rerum nulla maiores consequatur commodi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...