Partner,

As we enter the second half of 2025, it is our pleasure to share observations from the front lines as we review opportunities to partner with the next wave of private equity leaders.

We appreciate your partnership,

The Steward Team

steward@stewardassetmgmt.com

(212) 210 2920

Quarterly Highlights

2nd Quarter 2025

Institutionalizing Anchor Investing Issue #21

Elevated interest rates and geopolitical uncertainty have applied downward pressure on valuations, reaching a crescendo in 2025 and dampening transaction activity. This market environment is shaping up to be a favorable buyers' market, offering attractive entry points. For those US investors leaning in, steps towards policy clarity and reduced inflationary concerns create investment readiness. Bessent’s June testimony before the House Ways and Means Committee was one of the quarter’s moments of exhalation. The conflux of these effects has helped reignite IPO activity and portfolio exits.

Distributions ‘at long last’ have outpaced contributions. Indications of continuance are found in Goldman Sachs' IPO Issuance Barometer which has rebounded to 125, well above the 100 level scaled for typical IPO frequency. The barometer indicates that macroeconomic conditions are supportive of new IPOs. That said, outlier risks are ever present.

Additionally, private market underlying vitality is reemerging. Investor interest in the US Middle Market remains strong as it provides one of the most attractive entry points for US equity exposure making it an important tool for inflation protection.

Among these shifting winds, the US Middle Market stands apart from large buyout strategies. In this inefficient smaller company universe, success hinges on operational execution to a much greater extent, given the numerous avenues to generate growth. Preqin recently compiled data on the Middle Market premium, reporting that funds under $1 billion had a median outperformance of 2.5% over larger funds, in aggregate, across the 2000-2022 vintages.

Allocators targeting the Middle Market premium frequently review newer managers because the last decades’ successful managers often "graduate" to larger deal sizes and strategies. This creates a continuous need for allocators to identify and evaluate rising talent. 

Each year, in the United States, approximately 300 debut private equity fund managers seek partners for the first close of their debut fund. This aggregate demand of more than $15 billion for anchor capital to ignite the first close outpaces our estimate of the $5 billion available from institutions dedicated to anchor participation.   This $10 billion gap is projected to increase as vesting periods are now generally shorter than funds’ extension periods, unlocking top talent to begin their founders’ journey.

This increasing demand, as well as the US Middle Market premium, make the greater work involved in underwriting emerging managers highly rewarding.

These trends are culminating in select oversubscribed newer Middle Market funds. Their hands-on leadership, strong partnership alignment and often favorable economics create a compelling opportunity. Newer firms have the benefit of focusing on new deals, unburdened by the distraction of legacy positions. They also provide fee, execution and diversification alpha to private market portfolios.

Integrity Growth Partners, BharCap Partners, Ascenta Capital, Denali Growth Partners, Valspring Capital, Allied Industrial Partners and Invictus Growth Partners are among the recent group of Middle Market managers with notable funds, most with a final close above target.

Sectors have experienced a significant shift in capital flows, which are important indicators of opportunity. McKinsey recently reported on the global sector winners – those sectors that saw outsized growth in global private equity deal value in 2024.

• Consumer Products and Services. Total deal value increased 28% in 2024, climbing to $337 billion, which marks a notable reversal from the 5-year average decline of -2%. This reflects novel approaches to education, leisure, sports and media branding. The revenge spending economy has been in full swing.
• Financial Services. Total global deal value increased 40% in 2024, soaring to $208 billion, increasing from a 5-year average growth of 11%. This reflects the globalization, digitalization and AI transformation in wealth management, lending, capital markets and payment systems.
• Technology and Energy. Both sectors saw substantial growth, posting outsized deal value increases in 2024 of 26% and 15% respectively, a notable rise from the 5-year growth of 10% and 2%. Technology continues to lead with sizable deals in AI and cybersecurity, and the energy sector benefited from rising demand for energy production and transmission, driven by expanding data center development.
• Healthcare and Business Services. Experienced anemic deal value growth, at a 5-year average of -1% and 5% respectively, with modest gains of just 1% and 2% reported in 2024. Contracted valuations have contributed to this slow growth.
  

Milken Institute Global Conference 2025. Middle Market Private Equity: The Smart Money’s Next Move. Moderated by CAIA’s John L. Bowman and featuring R. David Andrews, Founder and Co-CEO, Gryphon Investors, Dean Mihas, Co-CEO and Managing Director, GTCR, Molly Murphy, Chief Investment Officer, OCERS, Scott Spielvogel, Managing Partner, One Rock Capital Partners and Andrew Weinberg, CEO, Brightstar Capital Partners. The Middle market continues to be a key area of focus for private equity firms looking to generate sustainable growth through strategic investments and operational enhancements.

S&P Global. Malav Parekh. SME IT spending strategies for 2025 driven by AI adoption. Unlike information security and cloud infrastructure, where spending increases typically represent expansions of existing investments, many of the planned AI expenditures come from first-time adopters.

U.S. News. Brian O’Connell. 8 New and Upcoming IPOs in 2025. A handful of prominent new listings have kept IPOs in the limelight, a trend that is expected to continue. With the Fed likely done hiking, investors are starting to look at growth again, but they're doing it carefully.

Mercedes Bent. Venture Partner at Lightspeed. Post: During Fundraises - 9 Investor Types. Mercedes reviews the various types of investors that make up a wonderful investor base.

Ropes & Gray LLP. Alyssa Horton and Colleen Meyer. Navigating the SEC’s New Marketing Rule. They review the new FAQs issued on March 19, 2025, which address the presentation of investment-level returns and investment characteristics.

Apollo – The Daily Spark. Torsten Slock. Uncertainty is High For Businesses. Surveys show that the top three risks for CEOs are geopolitical instability, trade and tariffs and legal and regulatory uncertainty.

Unigestion. Kim Pochon and Borja Fernandez Tamayo. Think Again: Busting the Emerging Manager Myths. Emerging managers create value differently and rely less on leverage and multiple arbitrage. By looking beyond the myths, a more nuanced and informed perspective can help LPs answer the billion-dollar question: “Are emerging managers worth the risk?”

McKinsey. Alexander Edlich, Christopher Croke, Fredrik Dahlqvist and Warren Teichner. Global Private Markets Report 2025: Braced for shifting weather. Investor interest and confidence in private markets remained strong. In McKinsey’s latest survey of the world’s leading limited partners, investors say that they will allocate more capital, not less, to private markets over the coming year…the long-awaited uptick in distributions has finally arrived. For the first time since 2015, sponsors’ distributions to LPs exceeded capital contributions (and were the third highest on record).

Steward Asset Management uses a strategic partnership approach to building diversified portfolios of primary fund investments. Our aim is to institutionalize anchor investing and capture excess return drivers available in smaller funds. Our lens focuses on next-generation innovation and growth in the Middle Market's healthcare, consumer, industrial, service and technology sectors.

Steward's strategy provides investors with early access to debut funds at an influential moment. Using control-oriented strategies, our capital is a multiplier for large-scale economic growth and progress. Steward's active sourcing identifies exceptional teams with sector capabilities that form a repeatable competitive advantage to win deals and bring value-creation levers to propel companies.

Our consultative partnership approach influences a newer manager's investment process, policies and human capital strategy. Our engagement helps to improve the risk-reward framework with GP stake participation and downside controls.

Headquartered in New York City, Steward is differentiated by a deep pipeline, GP stakes approach, unique assessment tools and extensive relationships within the emerging manager community. The team has an accomplished track record of propelling smaller and newer asset managers.

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