Thematic Pre-Work Investing
Build sector expertise before an investment becomes available
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 97%
The method moves most investment research ahead of the formal sale process. A team begins with a transforming sector, develops a detailed view of its future structure, identifies the companies most likely to lead several years later, and follows those businesses until an investable event occurs. Specialists, industry operators, and experienced board candidates supplement internal research with practical knowledge. When a target finally becomes available, the team does not attempt to learn the business from scratch during a four-to-six-week auction. Instead, it performs confirmatory diligence against an established thesis. This preparation supports faster decisions, sharper differentiation from competing bidders, and greater confidence that returns can come from business transformation rather than leverage alone.
Origin
David Layton described how Partners Group adapted its investment process as private-company sale timelines compressed from several months to several weeks. Extracted from Masters in Business.
Core principles
- 01Research sectors before assets become available
- 02Develop a view of how the market will evolve
- 03Judge future leadership rather than current size
- 04Use specialists and experienced operators
- 05Treat a sale process as confirmation, not discovery
How to run it
- 1
Choose a transforming sector
Identify a sector undergoing durable technological, regulatory, demographic, or behavioral change rather than beginning with a company that happens to be for sale.
Pro tip Favor trends that can support several years of growth or operational transformation.
Watch out Do not mistake a temporary surge in activity for a structural theme.
- 2
Develop a future-state thesis
Study how the sector is likely to evolve and determine which capabilities, positions, and business models should win.
Pro tip Frame the thesis around the likely market leader four to six years from now.
Watch out Current company size alone is not evidence of future leadership.
- 3
Build specialist knowledge
Use focused internal researchers, specialist organizations, and executives who have operated in the sector to expose hidden risks and practical realities.
Pro tip Cultivate potential advisers before formal diligence starts.
Watch out Generalist consultants may confirm that a market is large without revealing where value will accrue.
- 4
Track prospective leaders
Identify companies that fit the thesis and follow their performance, management, competitive position, and ownership status before they become available.
Pro tip Maintain living research so changes in the sector update the target list.
Watch out A favored company should be removed if new evidence breaks the thesis.
- 5
Run confirmatory diligence
When a company becomes investable, test management, financial, operational, and market evidence against the accumulated thesis. Focus the compressed process on unresolved questions rather than foundational learning.
Pro tip Document which assumptions were confirmed, weakened, or disproved.
Watch out Do not let years of prior research create commitment bias when fresh evidence is negative.
In the wild
Partners Group followed the long-running transition toward digital payments and invested in a major European electronic toll collection company. COVID-19 accelerated the existing shift away from cash, strengthening a theme the firm had already studied rather than creating an entirely new thesis.
→ The firm gained exposure to an established structural trend that received an additional adoption catalyst.
An investment team studies workflow digitization in a regulated industry, interviews former operators, maps likely winners, and tracks one provider for three years. When its owner initiates a six-week sale, the team concentrates on confirming retention, product quality, and regulatory durability instead of learning the market from scratch.
→ The team can make a faster, evidence-based bid with a defined post-acquisition strategy.
Common mistakes
Starting when the auction starts
Attempting to understand a sector, company, management team, and valuation within a few weeks produces shallow diligence and rushed conviction.
Following size instead of future leadership
The largest company today may be poorly positioned for the technological or competitive structure that emerges several years later.
Outsourcing judgment to generalists
Broad market reports can describe growth while missing operating realities, competitive fault lines, and the people capable of executing transformation.
Is it for you?
Best for
It is best for long-term investors competing for scarce assets in industries undergoing structural change.
Not ideal for
It is not ideal for short-term traders or investors who cannot sustain research before an opportunity becomes actionable.
From the transcript
“we have really put emphasis to our team on doing work well before a company sale process to make sure that when that company comes…”
“We want our people to be deep, as we talked about before, spend a couple of years on a space before ultimately investing into that…”
“we put our emphasis around which company is likely to be a market leader four or five six years from now in that particular space.”
From the episode
David Layton on Being an Outbound Global Driven Firm
David Layton