In a red-hot market for growth equity strategies, Warburg Pincus rolled out a 14th flagship growth offering with a target of $16 billion.
The target was disclosed this week by Minnesota State Board of Investment, confirming an earlier Reuters report. If met, Warburg Pincus Global Growth XIV will be the firm’s largest fund to date, topping the $15 billion raised by the 2018-vintage Fund XIII.
Fund XIV will maintain Warburg Pincus’ focus on pure-play growth investing worldwide, the MSBI report said.
The flagship strategy encompasses a full spectrum of growth opportunities, from early growth platforms to later-stage buyouts and special situations. Deal flow is sourced mostly in sectors like business services, energy, financial services, healthcare, industrials, real estate and technology across North America, Europe and Asia.
Warburg Pincus declined to provide a comment on this story.
The launch of Warburg Pincus’ latest flagship comes as growth equity is experiencing an historic run in the private equity fundraising market. Of the record $361 billion secured by North American vehicles in 2021’s first three quarters, 22 percent was captured by growth equity strategies, according to Buyouts data.
This share outdistances by far growth equity’s traditional take. In addition, commitments to growth equity, reaching more than $78 billion at the end of September, is record-breaking, surpassing all full-year totals of the past, including the $73 billion collected in 2019.
Why growth equity?
Growth equity sits in the space between buyout and venture capital. Investment in the strategy emphasizes companies with proven business models that have hit an inflection point and need capital to accelerate expansion. This includes everything from scaling operations and broadening product lines to making acquisitions and entering new markets.
The strategy has gained currency with limited partners because of solid performance. This is linked with underlying trends in high-growth sectors, such as healthcare and technology, which received a further boost during the covid-19 pandemic.
Another factor is growth-oriented businesses that are staying private longer. LPs who once accessed these opportunities in public markets recognize this development and are shifting to private markets to maintain exposure.
Secular tailwinds have encouraged many of the largest buyout firms to recently adopt growth equity strategies. Blackstone, for example, earlier this year closed an inaugural growth fund at $4.5 billion.
Themes for Fund XIV
Warburg Pincus, founded in 1966, is one of the oldest exponents of a growth thesis. Its latest flagship, which will back about 75 to 90 companies with equity checks averaging roughly $175 million, is to be guided by some key themes, the MSBI report said.
They include innovation. The firm “believes the world is experiencing a technology revolution that is picking up speed” and will create long-term opportunities “affecting most sectors of the economy.” Warburg Pincus, which focuses mostly on business tech, said innovation will be a major component of investing in financial services and healthcare.
Another theme is consolidation platforms. In mature sectors, such as business services and industrials, Warburg Pincus is aiming to create growth “through both M&A and increasing operational engagement.”
Finally, attention will be paid to developing markets, such as Brazil, China, India and Southeast Asia, where growth drivers include a rising middle class. Opportunities that meet demand in these locales are expected to be a priority area “for years to come.”
Warburg Pincus is led by CEO Charles “Chip” Kaye, president Timothy Geithner, the former US treasury secretary, and CFO and COO Steven Glenn. They oversee 740-plus employees, including 75 managing directors and more than 190 other investment professionals in 11 global offices, among them a New York headquarters.
Warburg Pincus Global Growth (Fund XIII) was as of June earning a 1.2x net multiple and a 24.5 percent net IRR, the MSBI report said.