1. What trends are you noticing among newer GPs?
I’d say at least on the emerging manager side, more of what we’re seeing is firms with a specific type of deal angle or an industry. Private equity generally has become more and more specialized. On the operational turnaround and restructuring side — that’s an area where we’ve done a couple of recent investments in new teams. Firms can get themselves into business by getting hold of a company for almost no money and then building their track record through a series of deals, without ever raising a fund with outside capital. We’re seeing more of that.
2. Are you seeing more spinoffs from older firms?
We’ve seen less of those from brand name firms. Senior people at firms are making money as fund sizes grow, and junior people are getting promoted and getting good experience. We’re seeing more cases where there’s a broken fund — where the performance has been mediocre or it has succession issues or something else is wrong — and then a subset of the team is reconstituting itself under a new name, maybe with or without the legacy platform.
3. Grove Street added fresh commitments to its separate accounts businesses in 2015. Can you share details?
We added three separate account programs totaling $600 million from two existing clients and one new client. The programs are targeting our core areas: early stage venture, growth equity, small- and mid-sized buyouts, and operational turnarounds. Each program is customized and focused on different subsets of that universe.
During the coming investment period in the next three to four years, we feel like we’re going to face a cycle of adjustment and correction in world markets at some point. Usually that’s a good time for private equity, so we think it’s opportune timing for the kinds of things we do. If I had to guess, 2016 will probably be a choppy and sideways kind of a year, sort of like we saw in late 2015. We don’t know what the change in psychology will be to cause a re-set.
4. How is Grove Street pivoting to meet the latest needs from LPs?
Our LPs are more engaged than ever in the details. We welcome this. It makes us have a more trusted relationship with them. There’s also more interest from our clients on helping them with the broader needs in their overall private equity program … like forecasting overall NAV exposures and managing and selling legacy assets. Separate accounts today means a lot of different things. Some firms offer more of a short-term advisory approach to a large number of clients. With others it’s really a sleeve of a pooled fund-of-funds. So the more our clients want to be involved, or want help with other stuff, the better. It helps us in terms of our differentiation and emphasizing how our model works.
5. You’ve been with Grove Street since 2001, after you co-founded biotech startup Biocode Inc. What drew you to private equity?
I love the exposure to so many different business models and industry segments. I’m very interested in what’s happening in software, Internet technology, biotech, as well as how more old-style industrial businesses operate or can be improved. Being able to see companies grow, succeed, get sold — and following all the underlying development over the investment period — [is] very interesting.
Action Item: Reach Frank Angella at email@example.com
Edited for clarity by Steve Gelsi.
Photo of Frank Angella courtesy of Grove Street Advisors