As QIC Private Equity marks more than 100 buyout co-investments since inception, we reflect on how the program has evolved and the enduring principles that continue to shape how we invest - setting the scene for a broader series of reflections to come.
Co-investing has shaped QIC Private Equity’s platform from inception. Our focus at the beginning was simple – to build exposure efficiently but selectively on behalf of a small number of clients. Early co-investments were single company exposures that aligned with our views on value creation in the asset class.
But as our platform and the market grew, so did our opportunity set – and our expectations of what co-investing could deliver for our investors. Today, co-investments are integral to how we construct portfolios, representing as much capital as our fund investments. They help us drive alpha, deepen manager relationships, inform our fund due diligence, shorten portfolio duration, improve portfolio liquidity, reduce j-curve and express conviction in themes and managers we know well.
Along the way, that experience has crystallised a set of enduring lessons about portfolio construction, manager selection and investing through cycles – lessons we will explore in a series of reflections over the coming months.
Those lessons have also reinforced a consistent focus on areas of the market where we believe we can best create value.
As QIC Private Equity marks more than 100 buyout co‑investments since inception, we reflect on how the buyout program has evolved and the key lessons that have emerged - beginning with three enduring pillars that guide where and how we invest today: (i) the lower mid-market, (ii) emerging managers with sector speciality, and (iii) secular, bottom-up underwriting.
Lower mid-market buyout
We consider the lower mid-market a distinct segment of the private equity universe. It is meaningfully different from the larger end of the buyout market, with distinct competitive dynamics, value creation opportunities and exit optionality. Investing in the lower mid-market can offer a higher dispersion of returns and greater opportunity for outperformance when the strategy is executed well.
Compared with large and mega buyouts, lower mid-market deal volumes and valuations are typically less correlated with market cycles, competition for deals is often less intense and entry price is not the sole determinant of who secures an asset. On average, valuations in the lower mid-market are around 15-20% lower than large buyout equivalents and are generally less sensitive to public market volatility, while larger buyouts tend to trade more closely in line with S&P 500 multiples1.
Lower mid-market deals typically employ lower leverage, supporting resilience further, reducing exposure to shifts in financing availability, credit conditions and interest rates. Over the 10 years to Q4 2025, average net debt to EBITDA in lower mid-market deals was 4.2x, compared with 7.3x in large buyout transactions2. We look for growth at a reasonable price, where companies demonstrate strong growth opportunities and are not reliant on financial engineering to drive value.
In addition, a high proportion of lower mid-market businesses are founder- or family-owned, meaning deal flow is often driven by ownership needs rather than economic conditions alone. These smaller businesses are also typically nimble enough to respond to changing market conditions.
In turn, these characteristics broaden the opportunity set – which matters in a segment where selectivity and the ability to target companies that align with strategy is an imperative for co-investing.
Post-investment, the lower mid-market can offer multiple value creation levers, providing important optionality. When we co-invest, we look to partner with a GP who can identify multiple routes for value creation and employ different levers at the same time. Lower mid-market businesses are typically less complex, which can shorten the time required for managers to execute value creation initiatives. Research on recent vintages in a higher rate environment suggests that margin expansion driven by operational improvements and growth-focused value creation initiatives has been one of the key factors differentiating top-quartile private equity deals from median outcomes3.
At exit, lower mid-market companies often benefit from broader exit optionality. Trade sales and sponsor-to-sponsor transactions can remain viable, and they remain small enough to be attractive to both strategic buyers and financial sponsors, reducing the reliance on IPO markets typically seen at the larger end of private equity. Our realised co-investments have been exited 35% through strategic sales and 65% to financial sponsors.
Emerging managers with sector specialty
We have backed emerging managers with deep expertise in specific sectors for two decades. Underpinning this part of our strategy is the belief that emerging managers can offer a number of structural advantages to a portfolio relative to more established peers, offering greater alignment, differentiated sourcing and focused, hands-on value creation.
Emerging managers are not simply managing a platform, they are building a business, a track record and a reputation, and therefore often have a higher personal and professional stake in the success of their business, creating strong incentives for disciplined deployment, active ownership and value creation. Their smaller teams and leaner structure can support this further by increasing agility, enabling quicker decisions and a greater ability to pursue niche opportunities.
Sector expertise is another important differentiator. Many emerging managers bring deep sector knowledge and operating expertise, which can help them identify opportunities in less efficient parts of the market and build differentiated deal flow.
These managers often back companies with leaner capital structures and deploy less debt in their own deals4 than more established peers, helping reduce exposure to tighter credit conditions, and their capacity to source off-market deal flow from niche sectors protects them from competitive tension.
In our experience, the combination of these characteristics can be especially powerful in co-investing, where manager alignment, underwriting discipline and speed of execution matter. While emerging managers introduce execution risk, we believe this is mitigated through deep underwriting, concentrated sector focus, and early alignment through co-underwriting.
Secular, bottom-up underwriting
Each co-investment we make is subject to secular, bottom-up underwriting, seeking to invest in businesses with durable growth drivers, strong downside protection, information asymmetry and multiple pathways to create value. This approach combines asset level due diligence with thematic priorities and manager selection.
In practice, we look for businesses where returns can be driven by company building rather than financial engineering. Typically, this means focusing on companies with secular growth drivers, defensible market positions, strong underlying fundamentals, multiple levers for value creation and prudent leverage that supports downside protection. We believe this leads to investments with a more asymmetric risk-return profile and portfolios with more consistent potential to outperform through the cycle.
Just as importantly, this approach also shapes where we are cautious. We seek to minimise exposures to businesses where returns are driven by factors like macro timing, commodity dynamics or financial engineering. We are also wary of models with a structural fixed-cost or capital burden, including capital intensive businesses where sustained investment compresses free cash flow and amplifies downside risk in weaker environments.
Practically, we have a well-established approach to underwriting managers and co-investments. The same team evaluates both fund and co-investments, giving us a consistent view of manager quality and repeatability over time.
Conclusion
For QIC Private Equity, co-investing is a core part of how we build portfolios, strengthen manager relationships and pursue resilient returns through cycles on behalf of our investors.
That approach has led us to focus on three enduring pillars: the lower mid-market, emerging managers with specialist expertise, and secular, bottom-up underwriting. Taken together, these pillars reflect how we think about portfolio construction in private equity: selectively, with conviction, and with a consistent focus on where we believe value can be created most efficiently.
Over the coming months, we will reflect on the lessons that have emerged from our first 100 co-investments and explore in more detail how they continue to shape our investment approach today.
Citations
- Preqin, 2025
- Crunchbase, 2025
- DealEdge, 2025
- Pitchbook, 2024