The new PE Playbook: Why minority holdings are reshaping Private Equity strategy

Bottom Line Up Front: Private equity firms are increasingly abandoning their traditional "control-or-nothing" approach, with minority stake investments surging from 13% of deals in 2004-2007 to 27% since 2008.

This strategic pivot, driven by market dynamics and creative capital deployment needs, is fundamentally changing how PE creates value and manages risk.

The private equity landscape is experiencing a seismic shift that's challenging decades of conventional wisdom.

Gone are the days when PE firms would only consider deals where they could secure majority control and implement their tried-and-tested leveraged buyout formula.

Today's market leaders are embracing a more nuanced approach: strategic minority investments that offer compelling risk-adjusted returns without the traditional control premium.

The Numbers Tell the Story

The data reveals a clear trend that's accelerating in 2025.

Minority stakes, deals to monetise a slice of a portfolio company either to fund growth or give investors a payout, stood at $116 billion in 2024, or 24% of the exit total. This represents a fundamental shift from the historical norm, where minority deals were primarily the domain of growth equity and venture capital firms.

The Boston Consulting Group analysed a sampling of deals entered by seven representative large PE funds and found marked growth in the proportion of minority stakes in the past few years, from an average of 13 percent of deals done globally from 2004 through 2007 to 27 percent of deals since 2008.

What's Driving This Strategic Evolution?

Market Pressure and Capital Deployment Challenges

The shift isn't happening in a vacuum. Financial investors, particularly private equity firms, regularly rely on debt to extend their reach and enhance their return on capital. However, with high interest rates showing little sign of receding soon, the cost of this debt has made debt-financed acquisitions less attractive.

PE firms are sitting on record levels of dry powder; capital that needs to be deployed; while traditional buyout opportunities have become increasingly expensive and competitive.

Robust fundraising has also left sponsor dry powder levels near 2023's historical peak. This capital deployment pressure is pushing firms to explore alternative investment structures that can generate strong returns without the traditional leverage component.

The "Alternative Liquidity" Imperative

Another critical driver is the industry's need for creative liquidity solutions.

Persistent sluggishness in exit volume will continue to pressure the industry to generate liquidity creatively. GPs have turned to a broad array of strategies and financial mechanisms to either return capital directly to investors in lieu of a full exit or to curtail incremental capital calls.

Remarkably, 30% of the companies currently in buyout portfolios have undergone some sort of liquidity event, with the industry raising a total of $410 billion via minority interests, dividend recapitalisations, secondaries, and net asset value (NAV) loans.

The Strategic Advantages of Going Minority

Superior Risk-Adjusted Returns

While minority investments typically generate lower absolute returns than majority buyouts, they deliver superior risk-adjusted performance.

The key advantage of MIN is its lower risk.

Furthermore, the lower risk more than compensates for the weaker returns. Sharpe ratios of MIN deals are higher than those of MAJ deals, for both the general partner directly investing in a minority stake and the limited partners investing in a fund.

This finding challenges the traditional PE axiom that control equals better returns.

Smart capital allocation increasingly values consistency and risk management alongside raw IRR performance.

Enhanced Portfolio Diversification

The move into minority investments allows private equity firms to further diversify their investments and mitigate potentially larger downside scenarios with majority recapitalisations. By spreading risk across a broader portfolio of minority positions, firms can achieve more stable returns while maintaining exposure to high-growth opportunities.

Access to High-Quality Assets

Minority deals often provide access to exceptional companies that wouldn't otherwise be available.

In many cases, winning buyers can offer credibility in the financial markets and specific expertise relevant to the priorities of the company in question (in particular, regarding inorganic growth and internationalisation).

Because sellers do not choose buyers based on price alone, PE firms are more likely to avoid the "winner's curse" of overpaying.

Where We're Seeing the Action

Professional Services Leading the Charge

The professional services sector exemplifies this trend perfectly.

Since 2021, the landmark year of private equity's splash in the tax and accounting sector with Tower Brook Capital Partners' investment in Eisner Amper, PE firms have bought stakes in 11 of the top 30 U.S. accounting firms.

Notable 2024 transactions include major minority investments in Grant Thornton, Baker Tilly, and Sikich, with by the end of 2025, more than half of the largest 30 U.S. accounting firms will have either sold an ownership stake or part of their business to private equity investors, up from zero in 2020.

Geographic Variations

The trend shows interesting regional patterns.

The four funds with a significant number of investments in both Europe and the Americas that we analysed did minority deals in 17 percent of cases in Europe, as against only 12 percent in the Americas. What accounts for the difference? In Europe, families control 40 percent of big, listed companies.

This geographic variation highlights how minority investing aligns particularly well with family-owned businesses that want to access institutional capital while retaining control and preserving family legacy.

The Partnership Imperative: Redefining PE Value Creation

The shift toward minority holdings represents more than just a change in ownership structure; it signals a fundamental transformation in how private equity creates value.

The traditional "acquire, optimize, exit" playbook is giving way to a more nuanced approach centred on collaborative value creation and ecosystem building.

From Control to Influence: The New Value Creation Paradigm

The single most important determinant of a successful minority investment is trust.

More than 90% of our investments have been partnerships with founder-led and -owned companies, so establishing a healthy and honest relationship with the person with the most control is paramount.

This represents a seismic shift in the PE value creation playbook. Instead of implementing post-acquisition operational improvements through control, minority investors must build influence through partnership and strategic guidance.

The new PE superpower isn't the ability to dictate; it's the ability to collaborate.

Building Strategic Ecosystems, Not Just Portfolios

Leading PE firms are evolving from portfolio builders to ecosystem architects.

They're recognising that the most valuable investments aren't just standalone companies, but interconnected networks of relationships, capabilities, and opportunities.

This ecosystem approach manifests in several ways:

Cross-Portfolio Synergies: Minority investors actively facilitate connections between portfolio companies, creating value through shared resources, joint ventures, and strategic partnerships that wouldn't exist in isolation.

Industry Platform Building: Rather than viewing each investment as a separate entity, forward-thinking firms are constructing industry platforms where minority holdings complement and strengthen each other.

Stakeholder Network Effects: The most successful minority investors bring not just capital, but access to their entire network; customers, suppliers, talent, and strategic partners thus creating exponential value beyond the initial investment.

Trust Through Value Creation: The New PE Currency

In the minority investment landscape, trust becomes the primary currency of influence. PE firms can no longer rely on board control to drive change; instead, they must earn their seat at the strategic table through consistent value delivery.

This trust-building process involves:

Transparent Communication: Regular, honest dialogue about challenges, opportunities, and strategic priorities builds the foundation for meaningful partnership.

Expertise Sharing: Successful minority investors become trusted advisors by bringing sector expertise, operational best practices, and strategic insights that management teams genuinely value.

Network Access: Opening doors to new customers, strategic partners, and growth opportunities demonstrates commitment to the company's success beyond just financial returns.

Cultural Alignment: Understanding and respecting the company's culture while gently introducing improvements creates sustainable change without disrupting what makes the business successful.

The Collaborative Value Creation Framework

PE minority investors succeed by building a trusting partnership with the management team. This entails understanding its priorities, defining clear objectives together, bringing in trusted experts who can support strategic and operational projects, and maintaining transparency throughout the relationship.

The most effective minority investors operate through what we call the Collaborative Value Creation Framework:

1. Listen First: Understanding the company's vision, challenges, and priorities before proposing solutions
2. Co-Create Strategy: Working with management to develop growth plans rather than imposing external strategies
3. Resource Mobilisation: Bringing operational expertise, market connections, and strategic resources to support execution
4. Mutual Accountability: Establishing shared success metrics and regular check-ins to ensure alignment
5. Long-term Partnership: Focusing on sustainable value creation rather than short-term financial engineering

The Innovation Catalyst Role

In this new paradigm, PE firms increasingly serve as innovation catalysts within their portfolio companies.

By maintaining minority positions, they can:

• Foster Entrepreneurial Spirit: Preserve the founder's drive and vision while providing resources to accelerate growth
• Enable Calculated Risk-Taking: Support strategic initiatives that might be too risky for a control-oriented investor
• Facilitate Strategic Partnerships: Leverage their network to create business development opportunities
• Drive Digital Transformation: Bring technology expertise and digital strategies without disrupting core operations

Exit Strategy as Partnership Evolution

Minority investments therefore require up-front planning on multiple exit aspects, even more so than in control deals.

Having significant influence (if not control) over the exit, for example, with put or drag-along rights, should be a key consideration from the beginning of deal negotiations.

However, the most successful minority investor’s view exits not as endpoints, but as partnership evolution opportunities.

They often:

• Facilitate Strategic Buyer Introductions: Leverage their network to identify optimal acquirers
• Support Public Market Readiness: Help companies prepare for IPO through governance, systems, and operational improvements
• Enable Continuation Strategies: Structure exits that allow continued partnership in new ownership structures
• Create Win-Win Outcomes: Ensure that successful exits benefit all stakeholders, preserving relationships for future opportunities

Looking Ahead: The Future of PE Strategy

A Permanent Shift, Not a Cycle

This isn't just a cyclical adjustment to current market conditions. The fundamental drivers, regulatory complexity, family business dynamics, capital deployment pressures, and risk management imperatives, suggest that minority investing will remain a permanent fixture of the PE toolkit.

Minority investing offers new opportunities for private equity firms and institutional investors to put money to work in high-performing companies and we expect these deals to be a permanent fixture of the M&A landscape in the years to come.

The Hybrid Model Emerges

Leading PE firms are increasingly becoming hybrid investors, maintaining both majority buyout capabilities and sophisticated minority investment platforms.

Neil Harper, chief investment officer of the MSAIP Private Equity Funds-of-Fund team, observed that "from our experience, funds that demonstrate the ability to flex between controlling and significant minority stakes perform at least as well as funds focused only on control, and even outperform such funds in some cases and some markets".

Strategic Implications for Market Participants

For PE Firms: Building Partnership Capabilities

The shift toward minority investments demands a fundamental reimagining of PE firm capabilities:

Relationship Management Excellence: Develop sophisticated relationship management systems that prioritize trust-building, cultural alignment, and long-term partnership over short-term control.

Collaborative Due Diligence: Move beyond traditional financial and operational due diligence to include cultural fit assessment, partnership compatibility evaluation, and shared value creation potential.

Network-as-a-Service: Transform your industry network from a passive asset into an active value creation tool that minority portfolio companies can leverage for growth, partnerships, and strategic opportunities.

Value Creation Without Control: Build operational consulting capabilities that influence through expertise and results rather than board mandates, requiring more sophisticated change management and persuasion skills.

Ecosystem Architecture: Develop the ability to identify and create synergies across minority holdings, building industry platforms and facilitating cross-portfolio collaboration.

For Business Owners: Selecting Strategic Partners

The minority investment landscape offers business owners unprecedented opportunity to access institutional capital while maintaining control, but success requires strategic partner selection:

Cultural Compatibility: Prioritize investors who demonstrate genuine understanding of your company culture, values, and long-term vision rather than just offering the highest valuation.

Value-Add Assessment: Evaluate potential partners based on their network strength, operational expertise, and track record of collaborative value creation in similar businesses.

Partnership Philosophy: Choose investors who view their role as strategic partners and growth catalysts rather than passive financial contributors or future acquirers.

Communication Style: Assess how potential investors communicate during due diligence—this often predicts the quality of the ongoing partnership relationship.

Reference Validation: Conduct extensive reference checks with other minority portfolio company CEOs to understand the investor's true partnership approach and value delivery.

For Limited Partners: Evaluating Partnership-Driven Performance

Limited Partners must adapt their evaluation criteria to assess GP capabilities in this more collaborative investment environment:

Partnership Track Record: Evaluate GP success stories in minority investments, focusing on collaborative value creation examples and management team testimonials.

Relationship Management Infrastructure: Assess the firm's systems and processes for managing minority investments, including relationship management protocols and value creation frameworks.

Network Quality and Accessibility: Understand the depth and accessibility of the GP's strategic network and how effectively they leverage it for portfolio company benefit.

Cultural Assessment Capabilities: Evaluate the firm's ability to assess cultural fit and partnership compatibility, not just financial and operational metrics.

Long-term Value Creation Philosophy: Look for firms that demonstrate genuine commitment to sustainable value creation through partnership rather than short-term financial engineering.

The Bottom Line: Partnership-Driven PE is the Future

The rise of minority holdings in private equity represents more than tactical adaptation; it's a strategic evolution that reflects the maturing of the asset class and the fundamental shift from transactional to transformational relationships.

As PE firms become more sophisticated in their approach to value creation and risk management, the ability to succeed across the spectrum from minority growth investments to traditional buyouts will increasingly separate top-tier performers from the pack.

The Collaborative Advantage

This transformation is creating unprecedented opportunities for collaborative value creation that benefits all stakeholders:

• For PE Firms: The ability to access high-quality deals that might otherwise be unavailable, while building sustainable competitive advantages through relationship excellence
• For Business Owners: Access to institutional capital, expertise, and networks without sacrificing control or compromising company culture
• For Portfolio Companies: Enhanced growth trajectories through strategic guidance, network access, and ecosystem synergies
• For the Market: More efficient capital allocation and sustainable business growth models

The Partnership Imperative

Smart capital allocators, whether GP, LP, or business owner, should view this trend not as a dilution of the traditional PE model, but as an evolution toward more sophisticated, partnership-driven value creation.

In an environment where capital is abundant but great companies are scarce, the flexibility to engage with exceptional businesses on their terms may well define the next generation of private equity success.

The firms that master this balance between control and collaboration, between majority leverage and minority partnership, will be the ones writing the next chapter of private equity's evolution.

The future belongs to those who can build ecosystems, not just portfolios, and who understand that sustainable value creation requires genuine partnership, not just financial engineering.

A Call to Action: Embrace the Partnership Revolution

As this transformation accelerates, market participants across the spectrum should ask themselves:

• Are you building relationships or just completing transactions?
• Does your value creation model depend on control, or can it thrive through collaboration?
• Are you constructing ecosystems that create exponential value, or just accumulating individual assets?
• Is trust a core competency in your organisation, or just a nice-to-have?

The answers to these questions will increasingly determine success in the new PE landscape, one where partnership excellence, collaborative value creation, and ecosystem thinking are becoming the fundamental drivers of sustainable competitive advantage.