Jefferies Financial Group and Stonyrock Partners have become the latest firms to launch a platform taking minority stakes in alternative asset managers, which comes as interest in the strategy is booming among both general partners and limited partners.
Leucadia Asset Management, which is part of Jefferies, said in a statement that it has partnered with Stonyrock to raise a permanent capital vehicle dedicated to the strategy. Stonyrock is a new firm founded by Craig Schortzmann, a former managing director at Blackstone Alternative Asset Management (BAAM), and Sean Gallary, former head of The Carlyle Group’s AlpInvest Partners.
Leucadia declined to comment beyond the statement, while Stonyrock was not available for additional comment.
The partnership will target alternative asset managers around the globe that invest in the mid-market across a multitude of asset classes, including private credit, private equity, real estate and infrastructure.
“There is a growing demand for capital within the middle market as firms are looking to address a range of strategic initiatives – most capital in the market today is focused on the large-cap segment, so Stonyrock is looking to address that demand,” a source familiar with the partnership said.
The permanent capital structure Leucadia and Stonyrock are looking to raise is critical to success in the space, as the deals aren’t structured to allow for a quick exit; the transactions are meant to be long-term arrangements.
“All of the major players in this space have investments structured to be permanent capital vehicles,” a fund of firms investment professional recently explained to Private Debt Investor. “The best way to align yourself with a manager is to be their permanent partner. By the deal’s terms, it doesn’t have any end date; there’s no date by which your interest goes away.”
Both BAAM’s Blackstone Strategic Capital Holdings, where Schortzmann was, and AlpInvest are fund offirms platforms.
Schortzmann joined Blackstone in 2013 after Credit Suisse ended its product that took minority stakes in private market managers, according to a Wall Street Journal report at the time. Gallary, who was previously a co-founder and portfolio manager at Tunbridge Partners, left AlpInvest in October after little more than 18 months at the firm, according to PDI sister publication Secondaries Investor.
Fund of firms vehicles have been getting more attention recently.
“Demand is building from institutional investors,” Jeff Hammer, a Houlihan Lokey managing director and co-head of the firm’s illiquid financial assets practice, previously told PDI. “The predictability of the income stream from funds with long-term, locked-up money presents an attractive investment opportunity.”
GPs are certainly responding to that demand. Managers that have launched fund of firms businesses include Goodhart Partners and Investcorp. Goodhart debuted Volunteer Park Capital in September and is seeking $200 million for the strategy, while Investcorp hired fund of firms veteran Anthony Maniscalco in November.
The 800-pound gorillas in the room – Blackstone, Dyal Capital Partners and Goldman Sachs’ Petershill programme – have all raised billions of dollars for the strategy. Blackstone raised $3.38 billion for its first fund and is reportedly seeking more than $3 billion for a successor vehicle. Meanwhile, Dyal Capital Partners has raised more than $7 billion and Petershill has raised $2.5 billion for their most recent respective funds.