Ex-HKW execs form fundless firm to target small end of market

Two ex-CEOs of Hammond, Kennedy, Whitney & Co joined with other partners to form a fundless firm targeting the smallest end of the market.

Monument MicroCap Partners comes as more private equity executives choose to launch fundless firms that source capital from select groups of investors.

Partner Roy Whitney and Managing Partner Glenn Scolnik launched Monument MicroCap along with Bob Erwin, president and CEO, and Partners Rob Troxel and Jim Futterknecht.

The Indianapolis firm will not raise an external fund but will invest the personal wealth of the partners along with capital sourced from a group of high-net-worth individuals, family offices and institutions, Erwin told Buyouts in an interview.

Deal-specific strategy

“We’re not going to have the pressure to put money to work. … We might go a year with no deal, and that’s OK,” Erwin said.

Monument MicroCap also won’t have be pressured to exit investments like a traditional PE fund. The firm will, however, target the same hold periods as PE funds — three to five years.

“It’ll be deal-specific,” Erwin said. “We may have an investment we sell in two years and hang on to an investment in five years.”

Monument will target lower-middle-market investments in the U.S. and Canada in companies with Ebitda of $1 million to $5 million, a statement from the firm said.

Sectors will include niche manufacturing, distributions, healthcare with no reimbursement risk and some infrastructure, Erwin said.

“The demographics of baby boomers retiring and businesses held by that generation … there’s a lot of businesses that will transfer over the next five to 15 years,” Erwin said.

The firm wants to work with management teams looking to continue running the business, he said. “Our objective is not to immediately come in and replace management,” Erwin said.

Whitney is former chairman and CEO of HKW, joining the firm in 1971 when it was a merchant bank and helping move it into long-term investing.

Scolnik, a former professional football player, became president and CEO of HKW in 1998. He retired from the firm at the end of 2017.

Erwin formerly was a managing director of Barings LLC’s global private finance team. Troxel founded and was president and CEO of Nesco LLC, which provides equity and services to the utility industry.

And Futterknecht was an operating partner at HKW and held various chairman, president and CEO roles.

Flows to independent sponsors

Capital flows to independent sponsors who are also first-time managers hit an estimated $32 billion last year, up from $29.6 billion in 2016, according to Palico.

Last year’s tally was out of a total of $69 billion raised for first-time managers, Palico said.

This increase stems in part from the challenge of raising a traditional first-time fund, David Lanchner, spokesman with Palico, told Buyouts earlier this year.

Fundless sponsors can be a way to give a new and promising GP a test-run before actually committing to a blind pool, he said.

Action Item: Read more about the firm here: https://monumentmicrocap.com/team/