2026 Dechert PE Outlook Report: Signs of a Gradual Thaw

Sector focus

Managers can refine sector expertise in different ways.

In a market where competition for fundraising is fierce, it has become essential for GPs to differentiate their propositions to LPs. Sector specialization has been a pathway to delivering this differentiation. Over half (55%) of respondents note that their investors have a preference for specialized strategies. In EMEA and North America, 57% and 58% of respondents, respectively, find that their investors prefer their investment strategy to be specialized, with 45% of APAC respondents recognizing a preference for such strategies. Preqin research, meanwhile, shows that sector specialist funds have made more distributions to LPs over time. Sector specialist funds in the 2012-2015 vintages posted median DPI ratios of 136.7%, versus median DPI of 130% for generalist vehicles. For 2016-2019 vintages, sector specialist DPI was more than 7% above generalist fund DPI. In a liquidity-constrained market, the cash-on-cash outperformance of sector specialist vehicles has been a key point of difference.

“Mid-market firms will focus on a handful of verticals. Their chosen verticals will be where they have the track record and the deal professionals with experience and networks,” Tomlinson says. “Large-cap managers will typically have different sector pods across their platforms and will raise multiple funds dedicated to specific sectors. We see large- cap managers consistently broadening their offerings across sectors, and the market is at a point where the LP would probably expect to have that choice.” Sector specialization is not only important for fundraising, but also for differentiating a dealmaker’s proposition to prospective target companies and management teams. “The sector specialism track is evident. As a GP, you don’t want to spread yourself too thinly and appear too generalist. A focus on two or three priority sectors provides a dealmaker with a repeatable edge and an ability to build an engine for steady deal flow,” Pedersen says. “A manager with proprietary sector insights, an understanding of the sector- specific regulatory climate and an operator network will have an edge in deal sourcing and deal processes.”