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Why Niche Is Nice in Private Equity

Investment firms with hyper-niche strategies are cropping up amid concern that private-equity deal valuations are running high.

  • By Alicia McElhaney

Private equity firms that target hyper-niche markets are offering investors a new avenue to park their cash amid increasing concern that too much money is flowing into funds with broader mandates, potentially hurting returns.

Take AUA Private Equity Partners, which targets companies owned by families or members of the Hispanic community, or One Way Ventures, which invests in businesses founded by immigrants and has raised about $16 million for its maiden fund, according to a document filed in November with the Securities and Exchange Commission.

They're offering under-the-radar strategies as investors pour money into private-equity funds, including buyout and venture capital. The fast pace of fundraising has made deal making more expensive, according to a Preqin report in October. Deal valuations were high at the end of September, according to PitchBook, which pegged them at 10.5 times earnings before interest, taxes, depreciation and amortization.

“We have a unique way of sourcing deals,” said Andy Unanue, who founded AUA in 2012 and formerly served as chief operating officer of Goya Foods. “We haven’t run up against much competition.”

The firm, which has $275 million of assets under management, invests in companies that sell consumer products or services. Unanue said he’s seen more investor interest in markets catering to the Hispanic population and expects them to expand.

“The Hispanic population is going to continue to grow,” he said.

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Eveline Buchatskiy, co-founder of One Way, said that the venture capital firm’s “sense of purpose” in backing immigrant-owned companies has made fundraising easier. Bloomberg’s venture capital fund, Bloomberg Beta, is among the investors in One Way’s new investment pool, according to Buchatskiy, who immigrated to the U.S. from Brazil.

One Way, which was founded this year, is working with family offices on raising money for its second fund, she said, aiming to complete fundraising in March.

Other new investment firms targeting niche areas of the market have cropped in the past few years. Backstage Capital, for example, was founded in 2015 to invest in companies started by women, people of color and members of the LGBTQ — lesbian, gay, bisexual and transgender — population.

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