PSG targets $6.5bn for next growth flagship

The software-focused growth equity manager says its exits are primarily to other PE funds.

PSG, feeling little pain from rising interest rates, is seeking $6.5 billion for its sixth flagship fund, according to Pennsylvania State Employees Retirement System, representing a quick turnaround for the software specialist.

PSG closed its fifth flagship fund in September 2021 at $4.5 billion. The manager has been active in fundraising the past year as it’s currently in the market with its second European-focused fund.

Details about PSG’s sixth fund were revealed at recent investor committee meetings of the Pennsylvania State Employees Retirement System. The full board approved a $75 million commitment to the sixth pool on February 28. Buyouts viewed a webcast of an investor committee meeting held prior to the full board meeting and a previous investment committee meeting on February 21.

According to a presentation made to the pension’s investment committee, Fund VI will make growth investments between $10 million and $150 million in business-to-business software companies.

“We believe in starting small and building big,” said PSG managing director Tom Reardon at the investment committee meeting.

Reardon also said PSG doesn’t rely on leverage in its deals. According to Reardon, PSG holds 93 percent equity across its entire portfolio.

“We put a lot of additional capital on our company’s balance sheets for a healthy capital structure as they are scaling. Interest rates have not affected our portfolio at all,” Reardon said.

PSG managing director Marco Ferrari said most of the manager’s exits are to other private equity firms.

“The next level of private equity funds have so much capital and they are looking for deals. We’ve become a source for them by creating companies of scale in end markets,” Ferrari said.

PSG has raised $14 billion in capital while making more than 115 platform investments with an additional 420 add-on acquisitions, according to the presentation.

Recent investments include productive intelligence software provider Prodoscore, construction site management software firm Beti and cloud-based consumer data provider Revuze.

In its presentation, PSG cited data from tech consulting firm Gartner that said global spending on enterprise software will reach $1.3 trillion in 2026, up 102 percent from 2020.

PSG is also seeking commitments for its second European-focused fund. According to board documents made available from Pennsylvania, PSG Europe II has a target of €2.5 billion.

Pennsylvania committed €65 million to PSG Europe II in December 2021. Other LPs that have invested in PSG Europe II include State of Wisconsin Investment Board, Texas Municipal Retirement System and California Public Employees’ Retirement System.

Update: A prior version of this article used an older version of PSG’s name. The article has been updated.