The Mid-Market Squeeze

In the months since launching our first research piece, we’ve enjoyed some great conversations with individuals who have embraced a frank discussion of the industry’s challenges. One recurring topic of conversation is the imbalance between supply and demand for capital in the lower- and mid-market segments in EMs.

The hollowing out of mid-market funds animated the decision to found Portico, and it served as the impetus for our EM Mid-Market Survey. The Mid-Market Squeeze shares our findings from the survey.

We undertook this project with two objectives in mind: (i) to test our hypotheses for the supply-demand imbalance; and (ii), to illuminate potential paths toward solutions.

Most of our hypotheses were affirmed, in whole or in part, but the report’s overarching finding is that the declining number of EM mid-market funds is more than just a funding gap, it is a symptom of industry-wide problems. Our survey reveals four drivers for the mid-market squeeze:

    • Macroeconomic developments in EMs are not the reason why LPs aren’t committing to mid-market PE funds; it’s the failure of EM PE funds to deliver returns.
    • There is an acute funding gap for EM PE funds smaller than $100 million in size.
    • Development finance institutions are walking away from smaller EM PE funds, and investing with larger, more established firms. Moreover, their preferred ticket sizes are in the sweet spot of where commercial LPs prefer to play.
    • Institutional investors lament the lack of transparency in the EM PE industry.

To learn more, please download a copy of the report by clicking the button below.