White Oak shops for PE-like hedge-fund stakes

  • Firm backed by a family office but may raise a fund
  • White Oak: opportunity for return from sub-$1-bln managers
  • Stakes will generate income over an extended period

White Oak Equity Partners sees an opportunity to make minority investments in sub-$1-billion hedge funds in exchange for a share of their net income while offering expertise to expand the businesses.

Chief Executive Bruce Wilson said middle-market hedge funds offer more growth potential than larger ones.

“We think there’s a trend around investor capital that would like to come downstream a little bit from the multibillion-dollar franchises into more modestly sized hedge funds that can be more nimble and potentially generate a stronger performance,” Wilson said in a phone interview.

White Oak is currently backed by a family office but it may consider raising a co-mingled fund, he said. He didn’t name the family office.

The New York firm plans to provide its hedge fund managers with capital, strategies and tools to build an institutional business.

Through an alliance with Park Hill Group, White Oak will also offer fund marketing and guidance to hedge funds. It’s agnostic on the type of hedge funds it invests in. The firm has yet to make its first investment, he said.

“This is really a partnership and growth opportunity,” Wilson said. “This is traditional private equity investing, with White Oak working as a strategic partner to help grow the hedge fund managers we purchase an interest in.”

A recent trend of some LPs reducing their allocations isn’t a major worry, Wilson said.

“Investors reduce their allocations for different reasons,” he said. “If you have investment talent with a differentiated, non-correlated strategy — regardless of what the overall allocation trends are — those managers should always have investors interested in their product. A pullback in allocations will have a greater impact on people who don’t perform.”

White Oak’s move comes among similar efforts in the industry.

Dyal Capital, a unit of Neuberger Berman, has invested in hedge fund managers and has more recently purchased minority stakes in H.I.G. Capital, Vista Equity Partners and Silver Lake.

Goldman Sachs sold minority stakes in five hedge funds this year to Affiliated Managers Group for about $800 million, according to a report. The bank also purchased a minority interest in Littlejohn & Co this year. Hycroft Capital is raising a $750 million fund to buy stakes in middle-market

Prior to co-founding White Oak, Wilson founded North Creek Advisors. He was also chief operating officer of Third Point, an event-driven hedge fund.

Action Item: Contact White Oak: http://whiteoakequity.com/contact

Photo courtesy of iStock/bkkm