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PitchBook Analyst Note: US PE Fund Performance by Investment Style

Q3 2021

PitchBook Analyst Note: US PE Fund Performance by Investment Style

September 7, 2021

Analyzing the benefits of specialization strategies in US PE Funds

Specialization has been a defining theme among PE firms for over a decade. Firms and funds have specialized by investment type—such as buyout or growth equity—geography, sector, and, in some cases, subsector. Regardless of performance, many allocators appreciate the additional control this allows in portfolio construction and management as private allocations begin to look more like public allocations. But the question remains: Does specialization, particularly by sector, lead to outperformance? In a new PitchBook analyst note, our analysts seek to answer this question. 

Takeaways include
 
  • Buyout fund performance for generalist, targeted, and specialist managers shows no clear outperformance trends between the three groups over time based on public market equivalents.
 
  • Analysts found selecting top-quartile managers across the investment style spectrum far more beneficial to returns than indiscriminately allocating to specialists.
 
  • IRR and DPI metrics also support the conclusion that no single style reigns supreme. Additionally, these metrics reveal how performance numbers may differ across timeframes and should be used concurrently to assess relative performance.
 
  • A regression analysis illustrates that while there is no linear relationship between sector concentration and performance, funds that were classified into the targeted group had slightly lower average PMEs and IRRs than both generalist and specialist funds.