PE HUB Wire Highlights, 7.6.18


Private Equity Editor Chris Witkowsky reflects at home. Photo by Wendy Witkowsky

Fundless sponsors make waves amid sea of new managers, ICG, Goldman lead spinout of PE team from ZZ Capital

Happy Friday!

This is Chris, and it’s good to be back on the Wire after suffering food poisoning over the last week. Have you ever dealt with food poisoning? How’d you get through it? I don’t think I’ll be eating out at restaurants for a long time.

Gearing up: I’m talking to folks in market about the emerging manager landscape for our upcoming emerging manager special issue this month. You may recall that last year I put together a chart of nearly 50 first-time funds in market recommended by LPs. Several of those GPs have gone on to close their debut pools, but many more continue out there in the wilds trying to reach their goals.

This year I’ve heard of new shops forming and trying to get a piece of this strong fundraising market. One thing that feels different is the growing number of independent sponsors hanging shingles. This was not something I heard too much about last year (or especially before that). It’s an interesting development on the GP and LP side. It shows more executives are choosing to leave bigger shops and take the rigorous path of the fundless firm for a time before hitting the fundraising trail. And it shows that LPs are interested in partnering with them.

LPs like this, from what I’ve been told, because it helps executives build track records of their own and it may even give LPs the chance to invest alongside the GPs and get a sense of how they work. It’s like taking a small taste before sitting down for the full meal. LPs are looking for opportunities to co-invest alongside talented executives directly into deals and here is a perfect opportunity to get in at the beginning.

For the GPs, going fundless allows them to invest, sourcing capital from a concentrated group of investors, without the stress and slog of a fundraising campaign.

Probing: Even when a GP builds up their own track record by going fundless, LPs will dig around their performance at their old firm, even if they aren’t allowed to talk about it, according to a GP I heard at a recent conference.

The GP said he and his partners had built up a strong track record investing deal-by-deal for several years. Then they hit the fundraising trail for their first closed-end fund, where some LPs continued to probe into the track record at their old fund, which they weren’t allowed to share. It created some awkward situations, including a fairly tense moment with one LP that ultimately helped the GP decide who not to include in the new fund.

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