New Mountain Capital holds a formal process every year to reassess its target sectors. This discipline leads them to abandon previously lucrative areas, like post-secondary education, when long-term headwinds emerge, ensuring capital is always deployed in areas with tailwinds.

Private equity firm Apollo is outperforming peers by having intentionally avoided software investments over the past decade. While others chased soaring SaaS valuations, Apollo's skepticism about the sector's durability, now threatened by AI, has positioned it to benefit as investors flee software-heavy funds.

The common advice to avoid trends focuses on market saturation. The less obvious reason is to avoid investor competition, which inflates valuations and erodes returns. A contrarian approach avoids both forms of competition simultaneously.

Peder Prahl shares a key lesson learned over 15 years: value investing fails without growth. Triton's strategy evolved to strictly require growing markets and profit pools, merging cost-side discipline with top-line potential to avoid stagnant, low-return assets.

As the PE landscape became saturated with generalist firms, differentiation became crucial. Sector-specialist firms gained an edge by leveraging deep industry knowledge to win deals, often without offering the highest price. This hyper-focus, born from necessity, creates a durable competitive advantage.

Peder Prahl of Triton explains their focus on discovering investment opportunities in niches like infrastructure and defense before the market broadly recognizes them. This requires foresight and conviction to invest ahead of the crowd, rather than following established trends.

Resist the common trend of chasing popular deals. Instead, invest years in deeply understanding a specific, narrow sector. This specialized expertise allows you to make smarter investment decisions, add unique value to companies, and potentially secure better deal pricing when opportunities eventually arise.

Private equity giant Apollo is posting record returns by intentionally sidestepping the software industry. While peers loaded up on SaaS at soaring valuations, Apollo's contrarian bet against the sector is paying off as AI disrupts traditional software business models and threatens incumbent players.

The best investment opportunities aren't always in glamorous, crowded sectors like tech or healthcare. True competitive advantage comes from identifying and mastering industries with "short lines"—areas with less capital and fewer specialists, such as Main Street franchise businesses.