Bain Capital says buyout firms must be more cautious as growth slows
US private equity group bucks industry trend of missed fundraising targets with conservative strategy
Bain Capital has warned buyout firms need to adapt to an era of lower growth as the conditions that fuelled the industry’s rise, such as cheap credit and rising valuations, are fading.
While many private capital groups aim to raise as much money as possible, some of the older privately held buyout firms such as Bain Capital are instead limiting growth.
“There have been a lot of positive tailwinds over the course of the last decade or more in private equity investing,” Chris Gordon, Bain’s global co-head of private equity, told the Financial Times. “But I think there’s a lot of caution out there in the market as to which strategies are really going to work going forward.”
Bain Capital believes a slower investment regime, in which it invests funds over three to four years instead of half that duration, could lead to stronger returns in the coming years as PE buyers grapple with a possible recession and the impact of artificial intelligence on their portfolios and financing costs.
The firm’s latest fundraising signals that investors are warming to these more steady investment approaches. Bain has just raised $12bn in fee-paying outside capital for its latest US buyout fund, beating an initial target of $10bn set earlier this year. When more than $2bn committed by the firm and its partners is included, Bain raised $14bn for the US buyout, representing a nearly 18 per cent increase from its prior fund.
Gordon said that while Bain’s fund was big enough to chase “the largest transactions,” it was small enough for his investment team to also consider investments in smaller, faster-growing companies.
Bain’s fundraising bucks a trend in which many blue-chip PE firms have fallen short on investment targets set for funds closed between 2022 and 2025.
Private equity fundraising hit record levels in 2021, but has shrunk by nearly a third since then. Many firms raised too much money and invested too quickly at high valuations, but are now struggling to exit investments and their investors are refusing to back new funds.
Rivals such as Blackstone, KKR, Apollo and Carlyle went public and have grown far bigger in size over the past decade. But Bain and other large privately held players have had a stronger reception from investors.
In 2023, Warburg Pincus, among the oldest US PE firms with a history tracing to the 1960s, bucked a weak fundraising market to raise $17.3bn, beating a target of $16bn, as investors embraced its more steady investment approach. CD&R, another old line buyout firm, also significantly exceeded its targets when it raised a $23bn fund that year, the FT reported.
Bain is one of the industry’s largest independent PE firms and manages nearly $200bn in overall assets. It has generated $12.5bn in asset sales, twice what it has invested since the start of 2024. In September, it sold a majority stake in German healthcare group Stada at a $10bn valuation to another PE firm.
David Humphrey, co-head of Bain’s private equity operations in North America, said the firm is closely monitoring the impact of AI on corporate bottom lines.
Humphrey said businesses with labour-intensive industries that employ white-collar professions faced new risks from AI in which large language models could replace their products. Companies that “have some truly proprietary data that nobody else has” or could “drive productivity with AI” stood to succeed, he said.