6 Signs of Recovery

4) Middle-Market Momentum

During the last fundraising boom, firms raised substantially larger funds than their previous funds. Often, this pushed middle-market investors into the category of large-market investors. Today, being an investor in the middle market is cool again, and the middle market is what the LPs are interested in backing. With this in mind, when Linsalata Capital went to market with its most recent fund, the firm made the decision not to raise more than it had with its predecessor.

"We targeted the same size fund, because we decided we didn't need to grow," reports Eric Bacon, a senior managing director with Linsalata. "Getting larger would put pressure on our ability to invest. This size fund was right for our team, and for banks and intermediaries with whom we have relationships," says Bacon of his firm's $427 million fund. "We are comfortable in this size range."

Linsalata is not alone. Being a middle market fund is what's good for business these days. The majority of capital raised for private equity investment is by middle market funds. In January, Clearlake Capital closed on a $785 million fund III, while Huron Capital closed is fourth fund, the Huron Fund IV, with $500 million.

"One size is not necessarily better than another, but the dynamics change," says Kelly DePonte of of Probitas Partners.

Indeed, as more and more LPs look to make direct investments into private equity deals, it makes more sense to do so at a larger level. The small deals are harder to find and make commitments to for the LPs.

"The LPs wanted to see that we could distinguish ourselves, but most of them said their interest lay in investing in the middle market, versus the large market," says Bacon.