Dyal Capital tops $5 bln to buy slices of PE management companies

  • Firm: Dyal Capital, a unit of Neuberger Berman
  • Fund: Dyal Capital Partners III
  • Target: $2.5 bln
  • Amount raised: $5.3 bln

Dyal Capital Partners, the Neuberger Berman unit that’s been purchasing minority stakes in private equity firms, already doubled its fundraising target for its third pool, with about $5.3 billion in commitments, as it moves toward a final close, according to a source.

Fund III’s original target was $2.5 billion. The strong fundraising performance comes as some limited partners such as sovereign-wealth funds and large family offices seek longer-term investments outside the traditional 10- to 20-year life of a PE fund.

A possible final close for Fund III may be achieved at or near the end of 2016, according to a source.

By owning a stake in the general partner, Dyal gets access to cash flows from the 2 percent management fee and the 20 percent carried interest paid to private equity firms across their respective fund families. One potential way for investors to exit a GP stake would be to sell it in the public equity market, or the secondary market, but no prominent template yet exists. See related story.

While New Mexico State Investment Council rejected a commitment to Dyal’s third fund this year, plenty of other LPs have signed on, including Minnesota State Board of Investment, which committed as much as $175 million to Dyal’s third flagship fund. University of Michigan’s endowment committed $50 million. Other big LPs include New Jersey Division of Investment as well as Alaska Permanent Fund.

Along with Dyal Capital, other firms launched similar funds, including Blackstone Group, Goldman Sachs and Carlyle Group. In the middle market, Hycroft Capital has been targeting a $750 million fund to buy GP stakes. White Oak Equity Partners is seeking investments in sub-$1 billion hedge funds.

Dyal Capital initially launched as a specialist in buying stakes of hedge fund managers, but it branched out into private equity GPs in Fund II and now Fund III.

In its latest move, Dyal Capital said in November it paid an undisclosed sum for a less than 20 percent stake in KPS Capital Partners.

Founded in 2011, Dyal Capital describes Fund III as a permanent capital pool and as part of three independent funds. The firm now manages 20 existing minority partnerships along with KPS. Other disclosed stakes include EnCap Investments, H.I.G. Capital, Silver Lake, Starwood Capital Group, Vista Equity Partners. Dyal’s Fund II invested in Providence Equity Partners.

Michael Rees, managing director at Neuberger Berman, also holds the title of head of Dyal Capital Partners. He’s a veteran of Lehman Brothers, like much of the team at Neuberger Berman. Sean Ward, managing director, is a founding member of Dyal Capital’s investment team. Rees and Ward are two key leaders of Dyal Capital. Mark O’Sullivan, managing director, is also a member of the Dyal Capital investment team.

Jeffrey Brown, founder and ex-managing director of Dyal Capital, left the firm this year. He was succeeded by John Dymnet, a former Goldman Sachs and Deutsche Bank executive, Buyouts reported in October.

Dyal Capital disclosed $1.15 billion in commitments and no fund target in a May 6 filing for Dyal Capital Partners III. Neuberger Berman said Dyal’s partners collectively manage assets of about $275 billion, according to its website.

A spokesman for the firm declined to comment. Bloomberg initially reported the $5.3 billion fundraising milestone for Dyal.

Action Item: Dyal Capital: http://www.nb.com/Pages/Public/en-us/dyal-capital-partners.aspx

An employee cuts a take-away pizza at a Domino’s Pizza store in Berlin on Aug. 19, 2013. Photo courtesy Reuters/Thomas Peter