Setter Capital, the independent advisory firm, has published its results for the most sough-after US- mid-market LBO managers for the second quarter of the year, with some interesting findings. The report found that majority of the US LBO funds on the secondary market were priced at an average of 97.3% of net asset value. This is around 8% higher than funds that didn’t make it into the top-35 list.
Who Are the Investors Looking For?
The Setter Capital rankings are based on the company’s Liquidity Ratings. The funds are rated in groups of Excellent, Very Good, Good and Unrated based on how much interest they receive from the market and how well the fund is selling.
The second quarter saw a new leader as ABRY took the top spot. The fund family has 12 funds in total, with the latest fundraising ending last year for its ABRY Partners VIII fund.
ABRY took the top spot away from HIG Capital, which also closed its latest fund last year. These two were the only fund families to receive the Excellent rating in the report.
Furthermore, Friedman Fleischer & Lowe’s fund family managed to make the most impressive improvement to its rankings. The fund family was previously ranked outside of the top 35, but managed to share the fourth spot in the second quarter ranking with Genstar.
When it comes to what the investors are looking for, top-35 funds are able to attract a lot more interest, as well as provide good results for investors, than non-rated funds. For instance, the top-35 funds typically perform better. Top-35 funds create 16% average IRR while the non-rated funds score an average of 14% IRR.
There are also notable differences in the fund sizes. The most sought-after funds have managed to raise $1,515 million, whereas the non-rated funds are $684 million.
Not surprisingly, the top funds have often been in operation the longest, which partly explains the better performance. These managers have been able to raise capital to around five funds, while the un-rated managers have, on average, only raised capital for three funds.
The impressive track-record also makes the top-performing funds lucrative for investors. On average, the average number of buyers on these funds is 25 while the non-rated or low scoring funds only receive four buyers.
Valuing the Big Players
The list only looks at firms that have raised funds between $500 million to $2 billion. Focusing on this middle market naturally means that not all well-performing funds make it to the top spot.
Kristina Kulikova, a senior analyst at Setter, told the Wall Street Journal, said not making the list doesn’t mean the fund might not be a great performer. “You can have excellent fund, but if it’s small and has a limited LP base, when you go to sell, it might take more time to educate buyers,” Kulikova told the news agency.
For investors looking for private equity investments ranking such as this could be useful in finding the right investment opportunities. You can also view the similar list for large-cap managers by Setter. If you are looking for private equity deals, head down to DealMarket.