Latest Economic Review: Sunpointe Illuminations

Opportunities in Lower Middle Market Private Equity

This paper evaluates the Lower Middle Market (LMM) segment of the private equity market with a focus on funds with assets under management (AuM) of less than $500 million. We find LMM private equity attractive because it offers lower purchase multiples, lower use of financial debt, more inefficiencies, and less competition compared to larger funds. These characteristics combine to increase potential for outperformance. Adjusted for leverage, LMM private equity offers better risk adjusted returns versus larger private companies. However, due to the wide distribution of manager returns, it is critical to identify and access top quartile LMM private equity managers. Equally important, investors should work with proven investment advisors with mid-size platforms (<$10 billion assets under advisement) and robust research and analysis capabilities who can consistently deliver high impact LMM private equity returns. [wonderplugin_pdf src="/wp-content/uploads/Opportunities-in-Lower-Middle-Market-Private-Equity-Sunpointe.pdf" width="100%" height="900px" style="border:0;"]