I’m reporting from Buyouts West #7 in San Francisco. Mark Bradley, Morgan Stanley’s global head of financial sponsors coverage, just interviewed Golden Gate Capital co-founder Jesse Rogers.
One interesting thing Rogers discussed is the structure of Golden Gate’s third and latest fund. Raised in late 2007, the firm approached the fund’s structure differently than your typical PE effort. Specifically, it employed an evergreen structure like a hedge fund. Rogers said:
When we raised our fund in 2007, we got asset class flexibility, and that turned out to be enormously valuable because we bought a lot of debt over the last few years. We also have a perpetual fund, which gives us the ability to hold assets in definitely. We can feel good about being able to hold assets through cycles.
One LP said that the decision wasn’t necessarily all Golden Gate’s idea—one of its large investors, Stanford, had requested the change in order to shake out some of the fund of funds investors. Yet many of Golden Gate’s investors were so taken with the firm’s strong track record that they created exceptions in their investment mandates in order to commit. The question now is, in today’s difficult and often contentious world of LP-GP relations, will Golden Gate be able to raise the same type of flexible fund again?
Given the strong performance of the young 2007 vintage fund (most debt investments from 2008 have performed exceptionally well, and Golden Gate has snagged a number of strong companies at dirt-cheap prices, our LP source argued), it’s likely they won’t have any trouble raising another large fund. The problem is that major endowment investors like Stanford have largely bowed out of the asset class. Like many buyout firms, Golden Gate may need to look abroad for investors.