The traditional private equity playbook of using leverage and relying on multiple expansion to generate returns is no longer viable in the current market environment. The focus must shift to fundamental business improvement, such as accelerating revenue growth and implementing operational efficiencies, to drive outperformance.
A significant transformation is underway as alternative investments, once the exclusive domain of institutions, become increasingly accessible to individual investors. This is driven by new fund structures (e.g., evergreen funds, BDCs) and dedicated distribution platforms targeting the private wealth channel.
The core and lower middle market (companies with valuations under $1 billion) is positioned to outperform large and mega-cap private equity. This segment offers more reasonable entry valuations, a less competitive landscape, and more significant opportunities for hands-on value creation.
Future Standard's growth exemplifies a successful strategy of combining organic builds with strategic partnerships and acquisitions. By partnering with scaled originators like KKR and acquiring specialized firms like Portfolio Advisors, the firm rapidly expanded its capabilities, product suite, and access to proprietary deal flow.
The industry is evolving beyond traditional closed-end funds to meet the needs of new investor types. The rise of evergreen vehicles, BDCs, and interval funds provides greater liquidity and accessibility, and future innovations like the digitization and tokenization of private assets will further transform the market.
Keep pulling the thread on Michael Kelly.