Merrick McKay (Abrdn): The advantages of investing in specialised Private Equity funds - Part 1

The discussion between Louis Flamand and Merrick McKay highlights a major shift in private equity: the rise of specialized funds at the expense of generalist funds. Whereas just fifteen years ago, generalist funds could succeed thanks to strong regional knowledge, the market has undergone a profound transformation—particularly in Europe—moving closer to the already highly sector-focused American model.Today, specialized funds hold a decisive competitive advantage. Their sector expertise allows them not only to better source opportunities but also to win deals and create greater value. This specialization is often accompanied by advanced internal resources, particularly operational teams capable of providing concrete support to companies as they grow.However, in more competitive segments such as the upper mid-market, specialization alone is no longer enough, as all players are already experts in their sector. In this context, differentiation hinges on the quality of the organization: origination capabilities, capital markets expertise, internal operational teams, and global infrastructure.A particularly attractive model is emerging: that of lower mid-market funds backed by large platforms. These funds combine the best of both worlds. On one hand, they benefit from the high-return profile characteristic of small companies. On the other, they leverage the organizational strength of large structures, thereby reducing the key risk in private equity: team risk. In the event of talent departures, the platform can reallocate internal resources, thereby securing the investment. Ultimately, the trend is clear: investors favor highly specialized managers, integrated into solid organizations, capable of combining sector expertise, operational excellence, and execution power.