Why managers are becoming targets

Seeking capital for your latest fund is usually one of the top priorities for any asset manager in the private markets, but how many are taking the time to seek investment in their own business?

Multi-boutique investment manager Goodhart Partners believes many smaller asset managers are in need of financing to develop their businesses and has launched Volunteer Park Capital as a platform to provide just this.

“We’re looking to service managers at the lower end of the market in private debt and private equity,” says Michael Daley, portfolio manager of the Volunteer Park Capital Fund. “We’re looking for established groups with at least one fund under their belt, who are looking for capital for various purposes.”

Typical uses for Volunteer Park investments will include assisting GP commitments to funds, growth capital, financing strategic expansions and dealing with succession issues. A typical target asset manager for Volunteer Park will have assets under management of $350 million-$2 billion and ideally be a boutique operator with an ability to specialise in particular market segments.

Daley joined Goodhart Partners from Pacific Current Group, and insists fund managers in the private markets are becoming increasingly attractive for this type of investor.

“Private capital has become a bigger focus in recent years, but to date there hasn’t been a major effort to provide capital to this market. There hasn’t been a good equity finance option for these guys in the past,” he explains.

Volunteer Park will only look to take minority stakes, saying that, while LPs are accepting of small minority stakes in fund managers being sold, the investor will not go above a 25 percent stake as it could damage alignment of interest between the GP and its institutional investors.

The firm is not just looking to provide capital but also advice and support for asset managers wanting to grow. The firm can act as counsel on regulatory issues facing firms looking to expand into new geographies. It also offers a Luxembourg-based fund platform for US managers wanting to distribute to European LPs, enabling them to quickly get up and running in the EU.

500 TARGETS

Volunteer Park Capital is thought to be targeting $200 million for its debut vehicle, though Daley was unable to comment on the firm’s fundraising target.

However, he confirms that Goodhart has identified 500 asset managers that fit its ideal profile and expects to do approximately eight deals from that, meaning the average equity commitment would be $25 million. Daley says the firm has already secured non-disclosure agreements with five potential targets, though these still need to go through due diligence.

Volunteer Park Capital also makes clear what businesses it will not invest in. First-time funds are off limits as managers seeking investment will need to show they have a good track record. Daley adds the firm will not be seeking to back spin-offs from existing fund houses, as they would face a much higher hurdle than independent managers.

The firm will look to exit investments in several ways: selling back to management; selling alongside management, if management receives an offer to sell a majority interest; selling either one investment or a chunk of the portfolio to a strategic investor; or listing a reasonably sized portfolio of investments, most likely in London, as an investment trust.