When Niche Goes Mainstream in Private Equity

Private equity firms are raising niche mega-funds, according to a new PitchBook report.

Illustration by II

Illustration by II

As interest in niche private equity strategies grows, so too does the size of the funds. But at what point does niche go mainstream?

According to new data on mega private equity funds published by PitchBook on Monday, more private equity firms than ever are reaching “mega-fund” status. In other words, funds with more than $5 billion in assets account for 45.3 percent of capital raised in North America between 2016 and 2018, according to the report.

This trend is expected to continue through 2019, which could be a record-breaking year in private equity, according to the report. And the industry stands to grow most when it comes to niche strategy funds, according to the PitchBook report.

These strategies can focus on a specific sector within the asset class, or a specific method of investing, the report said. But as they become mainstream, raising billions to invest, it’s unclear whether the strategies they sell can be considered unique.

“More niche vehicles — GP stakes and technology funds, for example — are growing into the mega-fund category, and many of the generalist buyout funds are coming from less diversified GPs, offering just a couple of distinct strategies rather than the multitude offered by household names,” according to PitchBook.

Three major technology-focused firms — Silver Lake, Thoma Bravo, and Vista Equity Partners — have either raised or are still raising mega funds, the report showed.


Silver Lake’s 2017 fund raised $15 billion, while Thoma Bravo’s 2019 fund, which closed in January, garnered $12.6 billion. Meanwhile, Vista is still in the market with its $16 billion vehicle, the report said.

The firms are expanding into complementary offerings at the same time they are raising these mega-funds, according to PitchBook.

“In a recent example, Thoma Bravo raised a second fund in its Discover fund family, which targets middle-market deals,” the report said. “Similarly, Vista Equity Partners created its Endeavor fund family, which pursues investments too small for the flagship fund after closing on its first mega-fund.”

Both the massive fundraises from tech-focused firms and these smaller, even-more-niche strategies raised on the side are both trends PitchBook expects to grow in the coming years, the report said.

General partner stakes, like what Neuberger Berman’s Dyal Capital buys up and offers within a fund, will also be an area of growth, according to PitchBook.

[II Deep Dive: Why Niche Is Nice in Private Equity]

“While we believe there will always be a demand for the generalist mega-buyout funds, we think more niche strategies will be vaulted into mega-fund status as limited partners look to commit capital to strategies that have differentiated risk/return profiles and growth drivers,” the report said.