After a challenging two years, private equity is turning a corner. According to a report by Bain & Co, 2024 global investments and exits were up by 37 per cent and 34 per cent, respectively, compared with the previous year. But, as the recovery begins to take shape, and investors once again study their options, will they find themselves continuing to face a binary choice between big private equity firms, with institutional-grade infrastructure, and boutique firms, which lack scale but tend to be nimbler than their bigger counterparts?
The question comes amid profound changes in private equity, with strong and multiple forces – from the uncertainty that has gripped markets since the outbreak of Covid-19 to the march of technology and rapidly shifting investor profiles – all pulling the sector in different directions.
Adam Said, Chairman and Co-founder of Swiss multi-stage private equity and venture capital group ACE & Company, which manages around $2bn in assets, says that one consequence of the upheaval is that the widely touted predictions about how the industry was going to evolve have failed to materialise.
A decade ago, people were saying that the market was going to grow and consolidate, but growth has only brought more fragmentation
“Large players have continued to innovate, expanding both the overall market and their share within it. At the same time, the market has become more fragmented and specialised, making the opportunities for outsized returns increasingly niche and dispersed.”
A third way for private equity firms
Said believes the resulting polarisation has created a new space – a third way – within the industry, in which private equity firms can offer clients the stability and global reach they seek from the larger industry players while delivering the boutique-level agility that can lead to higher returns. He stresses it is not just about blending styles, it is about rethinking how portfolios are built. “We designed ACE around a risk-stage framework, which means that our investors are exposed to a clearly defined category of private market risk rather than being tied to a specific theme, region or sector,” he explains. “It is a disciplined structure that still lets us pivot quickly when the environment changes. That combination is where we believe long-term outperformance happens.”
There is little doubt that demand is growing for the emergence of a “best of both worlds” as the industry’s client base shifts. Over the past few years, limited partners – the investors who contribute capital to a fund but do not have a hand in its management – have become increasingly sophisticated. Traditionally dominated by institutional investors, such as pension funds, insurance companies and endowments, limited partners now include large numbers of wealth managers, family offices and private banks. According to a 2024 Deloitte report, private equity accounted for 30 per cent of family office portfolios, up from just 22 per cent in 2021. “Private equity has surpassed public equity as the number one asset class family offices invest in,” it says.
SG M&R, a Swiss financial group that manages and advises Swiss and international private clients on wealth management, and invests with ACE & Company, looks to private equity in general for differentiated long-term, risk-adjusted returns amid today’s heightened market volatility and geopolitical uncertainties.
But Benjamin Chavaz, Senior Portfolio Manager at SG M&R, says that his firm’s increasing interest in secondaries – where an investor buys an existing interest in a private equity fund from another investor – has led it to seek partners that combine the knowledge and global reach of large private equity firms but that also retain the agility associated with smaller players.
You need specialised expertise and a strong position in the sector to navigate and capitalise on niche opportunities
“ACE has a focus on overlooked, opportunistic deals and a deep capability in navigating complex structures – a niche positioning that unlocks value in transactions that are often bypassed by larger, less flexible players.”
Converging strategies
So will the third way for private equity continue to grow, attracting the expanding pool of sophisticated limited partners, from wealth managers to family offices? Said believes the market will continue to expand and become increasingly competitive, with greater pressure on firms to differentiate their strategies. LPs are no longer just chasing performance, they are also asking how that performance is being built. They want transparency, risk discipline and partners who can move fast when the environment changes.
Pressure is increasing on value creation beyond capital, says Said – a fact that will reward private equity firms that go beyond financial analysis and prove their skill as operators. “Founders expect more than just a cheque,” he says.
It’s much less about financial engineering and arbitrage, and more about real operating value; if you don’t have an operating case, it’s going to be hard to compete.
