Nick Miller

Fortitude Investment Partners (“Fortitude”), a leading private markets investment manager, has launched the Fortitude Small Cap PE Fund, an evergreen fund targeting lower midmarket opportunities in the private equity space.

“We are excited to offer this new fund to the market. The Fortitude Small Cap PE Fund is designed to provide investors with flexible, diversified, access to a range of opportunities in fast-growing, profitable companies in Australia and New Zealand,” Nick Miller, Partner and Co-Founder at Fortitude, said.

The fund will also invest in targeted deal flows in selected sectors of health, digitalisation and technology, energy transition and food and beverage. It will offer quarterly applications and redemptions after a two-year establishment period.

“We have developed this fund to allow investors and advisers to build more sophisticated private equity portfolios and access the attractive lower mid-market sector in Australia and New Zealand,” Miller said.

This segment, which generally refers to private companies with an enterprise value (EV) under $200 million, has historically been the highest performing segment of private equity in Australian and New Zealand, according to Cambridge Associates.

The lower mid-market segment offers a broad range of opportunities, relatively limited competition for transactions, comparatively lower entry prices, and a variety of options for exit. There are more than 68,000 domestic companies in this segment positioned for potential growth and value-oriented exits according to Fortitude.

“We have a rich heritage of identifying high performing businesses, being exceptional growth partners and achieving profitable exits in this segment,” Miller said.

“We have been able to do this because we seek out companies with operating profitably which have also shown a clear competitive advantage, organic growth, and the potential for inorganic growth through mergers and acquisitions,” he added.

In the last several years, individual investors have increasingly embraced semi-liquid evergreen funds to access alternative investments. A shift can also be seen in the institutional market and with family offices. With no drawdown period, evergreen funds provide immediate access to a diversified portfolio and may have the ability to provide some liquidity in a traditionally illiquid asset class.

The Fortitude Small Cap PE fund is the first co-mingled fund from the investment manager, which has previously only invested in single company private equity deals.

“Given it’s higher return potential and differentiated exposure, the Fortitude Small Cap PE fund may work well as satellite allocation alongside more diversified global funds in the private equity space,” Chris Brookman, chief commercial officer at Fortitude said.

“The lower mid-market private equity segment is chronically underserved by the private equity industry, and with few managers specialising in this segment we believe our offer is unique and highly differentiated,” he added.

“Private markets have become a staple of large professionally managed portfolios and now individual investors may create those same allocations with less operational hassle, smaller investment minimums, and optimal diversification by using semi-liquid evergreen funds.”

The fund has a minimum investment of $100,000 and is available for both direct investment and on Hub24 and Netwealth platforms.

Fortitude is well regarded in the market for its strategic acquisitions. One of the defining achievement last year was the sale of Birch & Waite, a Fortitude portfolio company, to Quadrant. Earlier this year Fortitude deepened its footprint in the tech-enabled financial services sector, by acquiring a majority stake in ASF Audits, Australia’s largest independent self-managed super fund (SMSF) audit firm.

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Chris Brookman

Private equity investors are missing out on a reliable growth opportunity by overlooking a vast, undervalued corner of the market – Australia’s lower mid-market segment, according to Fortitude Investment Partners.

“With an abundant opportunity set, less competition for deals, lower entry prices, wide exit windows and the potential for higher exit prices, the lower mid-market private sector is booming with more than 68,000 domestic companies ready for scalable growth and value-driven exits,” notes Chris Brookman, chief commercial officer, Fortitude.

With further rate cuts on the horizon, potentially pushing more capital into riskier listed assets, Brookman says private lower mid-market offers a rare balance of stability and value. Backed by a vast and under-crowded opportunity set, he believes now is the time for investors to look beyond the obvious.

“Wholesale investors are probably already familiar with opportunities that offer exposure to mid and large-cap private companies. Investors may be less familiar with the lower mid-market, however and this is the segment of the market that Fortitude focusses on exclusively,” he added.

The lower mid-market includes companies with an enterprise value (EV) under $200m and would be considered ‘microcaps’ if listed on the ASX. (In fact, any listed company under $300m EV is typically considered a ‘microcap’.) Out of 2,059 companies listed on the ASX, about 1,470 fall into this category.

But in private markets the opportunity set is much larger. According to the Australian Bureau of Statistics, there are more than 68,000 private companies in the lower mid-market. This compares to an opportunity set in the mid-market (EVs between $200m and $500m) of 2,208 and the large cap market (EVs over $500m) of 1,725.

“Moreover, while many private equity firms begin their life in the lower mid-market, over time many will gravitate towards the mid-market and large-cap market as they raise more capital and will need to deploy into ever larger transactions. This means that competition for deals is fierce, as is the pressure to deploy.

“Ultimately this means that the ratio of 5-year transaction value to PE dry powder in the mid-market is 25:1 versus 218:1 in the lower mid-market,” Brookman says.

This imbalance delivers a clear pricing advantage. “At Fortitude we typically pay an average EBITDA discount of 30–50% versus the mid-market and large-cap market. As investee companies mature and move into the mid-market, the average price multiple will increase because of the increased competitions for deals at this tier of the market. This is called ‘multiple expansion’ and is one of the many levers that Fortitude uses to generate returns for investors,” Brookman says.

“Quality companies at this stage are also easier to scale. They have typically carved out a market niche which provides a meaningful pathway for expansion through both organic and inorganic growth. This means the potential to add value over time can be significant.

“And when the time comes to exit a company there is typically a broad range of buyers available. This might include other private equity firms, who focus on mid-market or large cap or it may be corporates, who typically have more discretion to make strategic acquisitions at the $200m – $500m range.”

Brookman says the case for the segment is clear. “The lower mid-market offers an expansive opportunity set, the ability to add value, expand multiples and ultimately find buyers.”

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Nick Miller

2024 was a milestone year for Fortitude Investments, a leading private markets investment manager, reflecting the firm’s disciplined investment approach and strategic focus on the lower mid-market sector of the economy.

“Our ability to deliver significant returns in a challenging environment speaks to the strength of our strategy,” said Nick Miller, Fortitude’s partner and co-founder. “The lower mid-market segment continues to present compelling opportunities for value creation, with its abundance of investable companies and wide exit windows.”

A defining achievement of 2024 was the sale of Birch & Waite, a Fortitude portfolio company, to Quadrant in May. This transaction generated an impressive return for investors, contributing to Fortitude’s overall portfolio gross IRR of over 30% and over 3x Multiple on invested capital, and total net capital returned to investors to $625 million.

“The Birch & Waite transaction underscores our commitment to delivering exceptional outcomes for our investors,” Miller said.

“Private equity investments allow us to take a hands-on approach, optimising operational performance and strategically positioning businesses for growth,” he added. “This adaptability and focus on tangible value creation provides investors with a reliable pathway to generate strong returns over time.”

As public markets face increased volatility, private equity remains an attractive asset class for investors seeking stable and predictable returns. The ability to control and actively manage investments provides a significant advantage over other passive strategies, particularly in an uncertain economic environment.

“We expect institutional and high-net-worth investors to favour capital allocation to private equity, drawn by its proven track record of resilience and growth across market cycles.”

Despite a difficult investment climate, Fortitude maintained a strong deal pipeline, advancing 326 opportunities to early due diligence and moving $75 million worth of deals into exclusivity.

“Our discipline in selecting only the highest-quality opportunities has been key to our success,” said Miller. “2024 reaffirmed the soundness of our approach and the resilience of the lower mid-market sector.”

The year also saw Fortitude strengthen its team with the appointment of Chris Brookman as Chief Commercial Officer. Brookman will oversee sales, marketing, investor relations and operations, positioning the firm for continued growth.

Looking to 2025, Fortitude plans to focus on its four core investment themes: Food and Beverage, Technology and Digitalisation, Healthcare and Infrastructure/Energy Transition.

“Our pipeline remains robust across these sectors, and we see exciting opportunities to continue driving value,” said Miller.

The lower mid-market’s unique dynamics, including a transaction value nearly three times that of the mid-market and a less competitive landscape, make it particularly attractive for Fortitude.

“This segment offers the ideal combination of abundant opportunities and attractive valuations,” Miller noted. “By applying active management, we can help portfolio companies grow into mid-market-sized organisations, unlocking multiple arbitrages along the way.”

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Joining Fortitude from Tidal Ventures, Brookman brings extensive experience of over 20 years in the funds management space. He has also worked in senior leadership roles at Pinnacle Investment Management, Altive and at Macquarie, where he spent over a decade leading the strategic accounts function of their asset management business.

“We are excited to welcome a seasoned professional like Christopher to our team. His appointment will no doubt enhance our distribution capabilities, allowing us to deepen intermediary relationships and drive fundraising efforts across Fortitude’s new investment opportunities,” said Nick Miller, managing partner and founder at Fortitude.

“Chris’s wealth of experience in distribution, coupled with his strategic insight into the Australian market, makes him a valuable addition to our team as we continue investing in the underrepresented lower mid-market segments across areas of technology, health, food and beverage and energy transition.”

“I am delighted to join Fortitude at such an exciting time in its growth journey. Fortitude has a distinguished track record of delivering strong returns to LPs with market-leading IRRs and a clear focus on the lower mid-market segment.

“I look forward to working closely with the leadership team and to contributing to the firm’s continued success and strategic expansion,” Brookman added.

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It is the inaugural rating for the Fund, which provides access to Aikya’s flagship emerging markets strategy.

Aikya portfolio manager, Ashish Swarup, said the rating is a testament to the team’s experience and differentiated approach to investing in emerging markets.

“Our investment philosophy is focused on stewardship and people, which is differentiated versus typical emerging markets managers. It’s a philosophy our team has developed over decades of investing in emerging markets, and we are very pleased Zenith has acknowledged its merits,” said Mr Swarup.

Pinnacle Investment Management’s Director, Distribution, Chris Brookman also commented: “Gaining a highly recommended rating upon the initiation of coverage from a respected research house is a rare outcome, so this is really a great endorsement of the Aikya team and their unique approach to managing emerging markets equities.”

“We thank Zenith for initiating coverage on this Fund and, together with Aikya, we look forward to continuing to provide more Australian investors access to this asset class and the strong long term investment track record of the Aikya Team.”

Aikya is a specialist emerging markets equities manager, based in London. The core investment team partnered with Pinnacle to form Aikya in 2020, after resigning from Stewart Investors.

Aikya’s flagship emerging markets strategy has been available to European investors via a UCITS Fund since 2020. The Australian Unit Trust was launched earlier this year. The strategy has delivered 3.23% per annum since inception (5 March, 2020) vs the MSCI Emerging Market Index -2.98% (in AUD terms, to the end of September 2022).

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