Parish Capital, a North Carolina-based funds-of-funds manager with $2 billion under management, has agreed to be sold to StepStone, two individuals not associated with the firms confirmed to Buyouts. The deal is expected to close in January of 2012. Terms of the deal were not available.
As part of the deal, two of Parish Capital’s three founders, Charles Merritt and James Mason, are unlikely to have active roles once the deal closes, the sources said. The firm’s third founder, Wendell McCain, left Parish Capital in 2010 to start a new firm, Onset Capital Partners. The three founders, all of whom graduated from the University of North Carolina, founded Parish Capital in 2003.
One Parish investor, who was not authorized to speak publicly about the sale, said: “We felt that they were smart guys, but they’ve had a ton of turnover, and when you have that kind of turnover, you start to feel that it’s not what you bought into.”
StepStone, which was spun out of PCG several years ago, is both an advisory firm and an asset manager. Its advisory clients — mainly pension funds, sovereign wealth funds and foundations — have more than $40 billion in private equity assets, while its asset management business oversees more than $7.5 billion in private equity assets.
StepStone has been on the acquisition trail of late. In 2010, the firm purchased SilverBrook Private Equity as well as Citigroup Private Equity, sharply boosting the firm’s overall managed assets.
For its part, Parish Capital’s investors have included the California Public Employees’ Retirement System, the New York State Common Retirement Fund, the New York State Teachers’ Retirement System, the North Carolina Treasury and Duke Management Co.
A key question for StepStone is what it plans to do with its Parish Capital acquisition. Parish Capital has been known since its inception as an emerging funds-of-funds manager. Parish itself was not only partly minority owned, but its strategy was to find and invest in promising, but less well-known private equity firms, many of which were run by women and minorities. One investor said, “clearly part of [Parish’s] appeal was their emerging status.”
StepStone is not known to be an emerging manager, so it isn’t yet clear whether it intends to build on Parish’s emerging investor specialty or just wants to absorb Parish’s fund of funds assets. Since many Parish investors committed money seeking greater exposure to emerging managers, it remains to be seen whether Parish’s current investors will stick with StepStone.
Moreover, the departure of Merritt and Mason could activate “key man” provisions, potentially forcing StepStone to get reaffirmations from Parish’s current investors about their intentions to remain committed.
A final issue concerning the deal is where it puts investors who are clients of both Parish and StepStone (as an advisor). One such investor is the New York State Teachers’ Retirement System, which may now have to navigate a potential conflict of interest.
News that Parish had been seeking a buyer had been lingering for several months, ever since Fortune reported in June that the firm hired an investment bank.
According to one source, “this deal was not altogether unexpected.”
Calls made to StepStone and Parish Capital were not returned.