Our Insights

November 2014

Declaring a Major: Sector-Focused Private Investment Funds

Josh Zweig, Andrea Auerbach, and Jasmin Tabares

  • While it seems clear that a sector specialist should outperform a generalist within their sector of focus, in this paper we introduce data to show that on average sector-focused managers do in fact outperform.
  • For the purpose of this analysis, we define sector specialists as managers that have historically invested more than 70% of their capital in one of four sectors—consumer, financial services, health care, and technology—over a ten-year time period (2001–10).
  • Investments executed by sector specialists across these four sectors returned an aggregate 2.2 times MOIC and a 23.2% gross IRR, handily outperforming generalist investments that returned an aggregate 1.9 times MOIC and a 17.5% gross IRR.
  • Sector specialists have a number of competitive advantages that we believe drive this outperformance: sourcing/portfolio company selection, post-acquisition value add, and exiting investments.