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Small-cap PE firms generating best returns, says HEC Paris

Smaller players in the small-cap private equity world are generating the best returns, with Renovus Capital Partners claiming the top spot with a performance score of 3.89, according to a recent ranking by HEC Paris Business School in partnership with Dow Jones. 

The 2023 small-cap firms performance ranking, developed by Oliver Gottschalg, a Professor at HEC Paris, reveals that New York-based Clarion Capital Partners ranks second with a score of 2.15, while UK-based GMT Communications Partners ranks third with 1.98.

The ranking evaluates the performance of small-cap buyout firms globally based on their track record between 2010 and 2019. These firms have collectively raised funds ranging from $100m to $1.5bn. The assessment considers performance data from all relevant buyout funds managed by each private equity firm, aggregating it into an overall performance score.

The top 15 firms in the ranking fall below the overall sample average of $750m in capital raised, while the four highest ranked firms raise less than half of this value on average at $374m, suggesting that smaller investment firms have bested larger ones in raising money.

In a press statement, Gottschalg said that “the very smallest players are proving their ability to rise to the top in the small-cap buyout market”.

European firms have made a notable impact in the small-cap segment, demonstrating strong competitiveness alongside their US-based counterparts. Among the top 20 positions, European GPs held seven spots, while US firms dominated the list in occupying half of the positions, including the top two, with Gottschalg adding that this meant that “US players are less dominant in the small cap segment than in other size segments of the buyout space”.

The top 20 firms out of over 632 PE firms represent a mix of sector generalists and specialists, with notable specialties in IT, healthcare, education and training. For example, Renovus Capital Partners focuses on education, training, healthcare and technology, while GMT Communications Partners focuses on communications infrastructure.

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