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Outsized Performance is Met With Outsized Demand




This article is sponsored by National Association of Investment Companies.

Written by Alan Hughes of the National Association of Investment Companies (NAIC)

Achieving oversubscribed status is often a positive accomplishment for private equity firms. It generally shows that investors have confidence in the firm’s management team and that its investment strategy will lead to healthy returns for its limited partners. For diverse managers, sometimes representing much smaller, younger firms, raising capital can be more challenging than those representing big-name institutions.

Recently, 10 diverse firms, among them Siris Capital Group, Palladium Equity Partners, Vista Equity Partners, Sycamore Partners, and One Rock Capital Partners, separately set out to raise capital for funds managed to reach oversubscribed levels. This event – the first time in history so many diverse funds have done so – could signal the beginnings of some much-needed changes in the way institutions invest their money while demonstrating the strong returns many of these managers are providing their investors.

According to Robert L. Greene, President and CEO of the Washington DC-based National Association of Investment Companies (NAIC), this occurrence is a validation of performance. “The LP’s themselves are looking at the returns, and they’re biting,” he says. “Each of the funds that were oversubscribed has generally received an average commitment of $75 million to $100 million. That is now on par with accepted representative investments that go into so-called mainstream funds.” The NAIC is the trade association representing diverse-owned private equity firm and hedge funds whose investment strategies often focus on emerging domestic and global mid-market opportunities.

Private equity firms raise money from various institutional investors, or limited partners. These LPs can range from high net worth individuals to university endowments to public pension plans. The money raised is then typically invested in operating companies in exchange for an equity stake. The fund management then develops a strategy to increase the value of that stake. Return on investor’s capital is earned when a liquidity event such as recapitalization, merger, sale or public offering is achieved.

New York City-based Siris Capital focuses on technology, with most of its deals being investments in public companies the firm takes private. The firm began raising for its third fund in September 2014 and closed on it in February 2015. “We put a billion dollars on our cover,” says Frank Baker, co-founder and managing partner. “And we ended up capping it at $1.8 billion.”

Baker cites the performance of his firm’s first two funds as a factor for investor interest in the fund. “I think the reason that we were able to raise such a big fund this time around is that our first two funds have performed quite well,” he says. “The markets now appreciate who we are and how we like to invest.”

According to Derek Jones, Managing Director at Grosvenor Capital Management who leads diverse manager private equity practice and co-investment private equity practice, some of these diverse managers are not only meeting, they are exceeding their targets putting their funds in the enviable position where they’re turning away money due to heightened investor interest. “And that puts those managers in the higher upper echelon of private equity where their strategies resonated well,” he attests. “Obviously there’s very strong performance and institutional investors are clamoring to get into the funds.”

When New York City-based Sycamore Partners began the fundraising process for Sycamore Partners II, L.P., it was the strong performance of its predecessor fund that helped the firm close on more than $2.5 billion in less than four months. That first fund, with a strategy of partnering with management teams to purchase leading consumer and retail businesses, generated gross returns in excess of 70 percent and net returns in the high 40s, according to publicly available information. “The easiest thing to say is we like great management teams to lead great brands,” says Stefan Kaluzny, Managing Director.

Those returns made a compelling argument to investors when the firm began fundraising for its second fund, a continuation of the first fund’s strategy. This second fund closed on more than $2.5 billion dollars with 100 percent re-up from existing investors, according to sources close to the firm.

These diverse managers didn’t just appear out of the ether. In recent years, the marketplace just began to recognize the talent (and returns) they bring. One recent trend that is occurring is the spinning out of established management teams from big-name firms into smaller, entrepreneurial ventures. “We’re seeing increasing activity of these spin-outs where people have worked together and they’re spinning out of the platform,” says Jones. “Before it was one person from this shop, another person from another shop. Now we’re seeing whole units raising money around their combined track record. And the fact that they’ve worked together and they were already a team makes it a little easier in terms of the diligence.”

One such firm is One Rock Capital Partners, LLC. Based in New York City, the firm was founded in 2010, with most of the management team having spun out of Ripplewood Holdings, a larger private equity firm also headquartered in New York City. Over the years, the team built cohesiveness and track record of performance that they took to the young firm. That resonated with investors.

Another thing that resonated was an investment One Rock made with third-party investors in Dixie Electric, a provider of electrical infrastructure and automation services for oilfields. “We sold Dixie Electric and it was a very nice outcome for our investors,” recalls Tony W. Lee, co-founder and Managing Partner of One Rock. “At the same time, other investors interested in One Rock could evaluate not only our prior track record and our backgrounds, but they could also see all the operational and strategic improvements we were making to that particular business.” Despite an initial target of $250 million, at the end of its fundraising process the firm had over $600 million of LP demand. One Rock closed its debut fund at $431.5 million in February 2014.

The rise in the numbers and performance of diverse fund managers is attributable to several fairly recent changes within the industry. Jones also claims many of the gatekeepers and consultants had a more myopic view of where the talent was in years past – a trend that is shifting more in favor of casting a broader net. “In the old days, you would have had to have been in business for 10 years, or have a track record of X number of years, or worked at a certain number of places,” he states. While cliché, this is in effect leveling the playing field to a degree. And these fund managers are responding by providing returns.

Another factor benefitting the new generation of managers are increased employment opportunities for diverse professionals at big-name firms where they are gaining valuable experience and contacts. Over time, some of these managers opt to leave these mega firms and hang their own shingle. In decades past, there simply was not a critical mass of well-positioned diverse professionals in the private equity space.

But don’t confuse this demand with investors looking for a diversity and inclusion play. According to David Perez, President and Chief Operating Officer at Palladium Equity Partners, LLC a New York City‐based private equity firm, another factor contributing to the success of these funds is demand by foreign investors and others with no social agenda whatsoever. “The truth here and the fact is that when you’re oversubscribed generally because you have delivered performance, not because you are a genius marketer,” asserts Perez. “We believe it’s the marketplace speaking.” Palladium, which focuses on transitioning founder-owned businesses and investing in companies it believes will benefit from the growth in the U.S. Hispanic population, targeted $800 million in its most recent fundraise and ended up closing on $1.14 billion.

The New York State Common Retirement Fund, NYCRF, is one institution that has recognized the value that these managers offer. NYCRF currently invests $9 billion through Minority Women Business Enterprise (MWBE) firms through direct mandates and its Emerging Manager program. It has also committed more than $5 billion to up-and-coming investment managers through the program; over 50% of these managers are with diverse- or women-owned firms. “The goal of this program is to increase access to the pension fund’s investment opportunities and expand the talent pool of managers,” says a spokesperson for the NYCRF.

So what does this all mean? For starters, that these boutique firms can actively compete against the large firms rather than having a protected, exclusionary system that is not of interest to the broader markets. It also means that with billions of dollars left on the table due to oversubscription there’s a greater demand and desire, creating new opportunities for new firms. “To the degree that you didn’t have an opportunity to get in with Vista, or Sycamore, you then have other respected choices that you can go to,” says the NAIC’s Greene. “I think that some of that success of the very top [diverse] firms has lended itself to a next generation of firms that will now begin to fill in the ranks.”

Firm Fund Target – Millions USD Closed – Millions USD
Siris Capital Siris Partners III, L.P. 1,000 1,810
Sycamore Partners Sycamore Partners II, L.P. 2,000 2,500
One Rock Capital Partners One Rock Capital Partners, LP 250 431.5
Palladium Equity Partners, LLC Palladium Equity Partners IV, L.P. 800 1,140
Vista Equity Partners Vista Equity Partners Fund V 3500 5,775



About NAIC
For more information, visit the National Association of Investment Companies at, call +1 202-204-3001 or email the author at

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How Does Geopolitics Affect Financial Markets?



This article is sponsored by State Street Global Advisors.

In Alexandre Dumas’s 1844 novel The Count of Monte Cristo, news of an impending cross-border revolution in Spain leads to financial panic among French investors. Some investors end up selling Spanish bonds at a great loss, only to see the price bounce back after the news proves to be erroneous.

Geopolitics matters to markets in the real world too and has been a major theme in 2018, as the post-war global order is dismantled and protectionism takes hold. But, as in Dumas’ tale, it can be hard for investors to know how to react to such uncertainty. In this paper, we examine attempts to assess the impact of geopolitics on markets and conduct our own analysis on how it plays out over different time periods. Our hope is that investors can use this analysis when considering how best to respond to future geopolitical events, in terms of both the risks and opportunities they may present.

By clicking on the link to view the report, you acknowledge you are an institutional investor or other accredited investor.

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Through the looking glass



This article is sponsored by Dominion.

The decision taken by the British Government to require the 14 British Overseas Territories (BOTs) to establish Public registers of the beneficial owners of Companies registered in these territories has so far created a divided reaction. The BOTs, have generally taken the view that it is grossly unfair for the UK Government to use ancient Constitutional rights to impose the new legislation whereas the Crown Dependencies who are not affected by this decision have unsurprisingly provided a more measured response. This is reflected by Deputy Gavin St Pier in statements very similar to those issued by Politicians in Jersey stating that ‘Guernsey will introduce a public register if that becomes the agreed global standard.’

Gavin St Pier’s words have I am sure been chosen carefully since the body that has the necessary authority to end this debate is The Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) that has been the multinational framework within which work in the area of transparency and exchange of information has been carried out by both OECD and non-OECD economies since 2000. The Global Forum is the only international body endorsed by the G20 on issues of transparency and Exchange of Information for tax purposes.

So what does the Global Forum have to say on this issue. Well, paragraph 14 of the report of the Plenary Meeting of the Global Forum held in Cameroon in November 2017 states ‘The second round of peer reviews launched in 2016 reflects the latest developments in international tax transparency, including the requirement to have beneficial ownership information which strengthens the fight against anonymous shell companies and the use of legal arrangements to conceal ownership of identity.’ So reasonably one might expect, this issue should already have been dealt with. Unfortunately not it seems. The information sharing framework created by the Global Forum is designed as an exchange of information programme between Governments. Information exchanged is not available to the Public. So therein lies the problem. Public disclosure of beneficial ownership, despite what paragraph 14 might say, does not appear to have been clarified by the Global Forum, leaving it to Governments, pressure groups and other Organisations around the World to set the Public Agenda on this thorny subject.

Hopefully at this years Plenary Meeting of the Global Forum guidance will be provided on this issue that will feed through into legislation in all Countries that have adopted CRS. In the Plenary Meeting in Cameroon it was noted that ‘Some Members expressed concern that the ongoing EU listing process (referring to a proposed blacklisting of certain jurisdictions by the EU) is occurring outside the framework of the Global Forum… Statements like this would not I imagine encourage the Crown Dependencies to make further comment on this issue or to take any specific action as the Global Forum is clearly through these remarks reinforcing it’s mandate granted to it by the G20. The direction of travel, if one considers EU anti-money laundering Directives and bodies such as the EITI of which the UK is an important Member, would appear to favour a new regime creating a framework for Public Disclosure but when and in what form all stakeholders in this process will just have to wait and see what develops and whether the Global Forum will opine and then issue model legislation on this important issue.

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How Do Public Pension Funds Invest?



This article is sponsored by State Street.

Public Pension Funds (PPFs) are highly idiosyncratic and distinct from other types of institutional investors. The universe of investors that fall within our definition of a PPF is numerous and varied. We count 115 institutions in 70 jurisdictions, diverse in geography and economic development. For the purposes of our study, we examined the top 16 funds whose assets constitute just over two-thirds of the total universe. Despite all the idiosyncrasies of PPFs, we have found some shared characteristics in the evolution of their asset allocation over the past decade.

According to our definition, PPFs held around $5.9 trillion in total assets of 2016 and over 4% of all publicly traded assets, making them a significant global investor group. In particular, given their preferences for specific asset classes, their share is disproportionate in some segments. For example, we estimate that by year-end 2016, PPFs owned over 7% of global tradeable fixed income assets (including 8% government bonds and over 13% of inflation-linked bonds) and over 3% of listed public equities.

Similar to other asset owners, PPFs have undertaken a major reallocation of assets over the past decade. However, the motivating driver has not only been the low yield environment, but also changing regulatory and macro policy settings, which either permitted or encouraged greater diversification along asset classes and geographical exposure.

In detail, the most dominant trend has been the move away from holding domestic (local currency) bonds; in their place, PPFs have redeployed assets towards equities and alternatives, with a small share also diverted into foreign bonds. These allocation trends have been almost universal despite a huge diversity of geography and economic development.

It is important to acknowledge how much this investor group has changed over the past decade, with the asset pool growing by over 40% in dollar terms, and even more if measured in local currencies. While some funds are still predominantly captive buyers of government debt, the bulk of PPFs have been transforming into financial institutions with independent firepower and income-generating capacity. The long-term trend towards more diversified fixed income portfolios is likely to continue, as is the shift towards taking on more risk via equity allocations, subject as ever to changes in market cycles. In this context, we expect most PPFs to not only continue taking on more risk overall, but to further internationalise their portfolios.

Finally, one consideration is that maturing funds catering for aging populations will have to make further adjustments to their asset allocations to account for changing cash flow directions and seek greater contributions and investment returns to bridge any funding gaps.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that SSGA expects, believes or anticipates will or may occur in the future are forward-looking statements. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

Tracking Code: 2172159.1.1.GBL.RTL


By clicking on the link to view the report, you acknowledge you are an institutional investor or other accredited investor.

Elliot Hentov, Ph.D. Head of Policy and Research, Official Institutions Group
Alexander Petrov Policy and Research, Official Institutions Group
Sejal Odedra Business Analyst, Client Strategy, Official Institutions Group

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