Riverside plots possible expansion after minority investment from Parkwood

Riverside Co may expand its investment platform to include a turnaround fund or European micro-cap vehicle, Co-CEOs Stewart Kohl and Béla Szigethy told Buyouts.

The middle-market specialist is contemplating the expansion after selling a 10 percent stake in the firm to Parkwood LLC, a multifamily office based in Cleveland. The size of Parkwood’s investment was not disclosed.

“We do see the opportunity to launch a new fund family, and this will support that, done thoughtfully and on a measured pace,” Szigethy said. Riverside, founded 1988, manages more than $5 billion of assets across seven families of private equity and credit fund strategies.

A new micro-cap fund family for Asian investments would represent a natural extension of its existing U.S. micro-cap strategy. The firm already manages a variety of mid-cap investments through its Hong Kong, Singapore, Tokyo and Melbourne offices. Similarly, Riverside’s expansion into turnaround investments could further its existing debt- and credit-related strategies, particularly in the event of another downturn, Szigethy said.

Plans for a new family of funds haven’t been formalized, but the Parkwood investment would enable Riverside to scale new vehicles more quickly while maintaining capital requirements for its existing businesses, Kohl said.

“This is going to play out over a long time,” he said.

Riverside’s senior-debt team, led by David Dobies, is seeking $250 million to $500 million for its debut vehicle, Buyouts reported in December. The firm closed its latest micro-cap fund on $650 million in September, exceeding its target by $150 million.

The Parkwood investment

Parkwood’s investment in Riverside will also enable the firm to establish an employee-stock-ownership program within the next quarter, giving staff the opportunity to participate in the ownership of the company alongside the firm’s management team, Szigethy said.

The firm explored several options before bringing in Parkwood as an investor, Kohl told Buyouts. Several PE firms, including Silver Lake and Vista Equity Partners, have sold stakes in their management companies in recent years.

Dyal Capital Partners, a Neuberger Berman platform, has raised PE funds dedicated to acquiring stakes in other firms. Blackstone Group and Goldman Sachs are also pursuing investments in other asset-management firms.

“A couple years ago we started to take a look at why a few major private equity firms were inviting third-party capital into their firms,” Kohl said. “We felt it best to go with a company where we had an existing relationship, and where there was a cultural fit.”

Parkwood LLC is a longtime investor in Riverside Co funds. Its co-founder, former Premier Industrial Corp chief Morton Mandel, has been a mentor to Kohl for several years, Kohl told Buyouts.

“We have been a significant private equity investor for over 40 years including with many marquee firms,” Mandel said in a statement. “Partnering with Riverside in this way is a perfect fit for our strategy and culture.”

Parkwood did not respond to a request for comment.

Action Item: More on Riverside Co: www.riversidecompany.com

Riverside Co-CEOs Béla Szigethy (left) and Stewart Kohl. Photo courtesy of Riverside Co.