With the increasing trend toward sector-specific funds, the word "generalist" had become something of a no-no in private equity. Many naysayers predicted that the generalist fund would not survive the downturn. The common wisdom was that the only way for private equity funds to make it in the new world was to be industry-focused and experts in specific sectors. However, based on a good number of funds raised recently, it looks as if generalist funds may be making a comeback. LPs still believe it's okay not to be ultra-focused on a few sectors, as long as you can show strong returns and have proven methods that generate solid results. In fact, 67 percent of fund managers indicated that track record is the most important factor when LPs evaluate funds, according to the fourth annual PErspective Private Equity study conducted by BDO USA LLP.

On the larger end of the market, in February, New York-based TowerBrook Capital Partners LP closed TowerBrook Investors IV with $3.5 billion. TowerBrook invests in many different sectors, seeking companies that are contrarian by nature or are very complex, in hopes of scaring away the competition. On the smaller end of the market, River Associates Investments LLC was able to close its latest fund, River VI, with $222 million in commitments, which was twice as large as River V. Additionally, the firm added new LPs, a coup in today's stiffer fundraising environment.

"This is the first time we went after institutional money," says Mark Jones, a partner with River Associates. "It was competitive, and you need to have something compelling to differentiate yourself, but it doesn't have to be sector expertise. What resonated with our investors was that they were banking on an established team with a long, strong track record that has been consistent. You can have a great industry focus and not such as great a team. That won't work. Track record speaks the loudest."

DePonte agrees that track record is the way into the LPs' hearts and that sector-focused funds aren't necessarily outperforming generalist funds these days anyway. "LPs aren't looking to add new relationships. If they have a core portfolio that performed well they will stick with those (general partners) and not look to add many new relationships," reports Kelly DePonte of Probitas Partners. "We are seeing more sector-focused funds, but if you look at track records, there's a huge gap between first-quartile and third-quartile returns in all funds, so it's not about the sector funds; it's about being a top-quartile fund," he says.

What's more, some argue that being too focused can be a negative. "I wouldn't have wanted to be a specialist going through the last six years," says Eric Bacon (pictured), a senior managing director with Linsalata Capital Partners, who favors the term "multi-sector specialist."

"We have diversity and actually sought additional diversity in food, health care and aerospace and defense during the downturn," says Bacon. "It is important to leverage industry contacts and expertise when you have them, but to be devoted to a single sector would be concerning to me as a general partner." In 2012, Linsalata closed $427 million for its seventh fund.

Josh Sobeck, a partner with fund of funds firm 747 Capital, says his firm invests in generalist funds all the time. "We have historically been comfortable with generalists, but they usually have something else that's unique that draws us to them," he says.

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