Dyal Capital Partners is preparing to hold a first close on as much as $2 billion in December for its latest vehicle that will acquire minority stakes in asset managers, Private Equity International has learned.
The Neuberger Berman unit has already secured around $1 billion of commitments and is targeting up to $6 billion for Dyal Capital Partners IV, according to a source familiar with the fund. The fundraising comes less than a year after the firm held a final close on $5.3 billion for Dyal Capital Partners III, with the New Jersey Division of Investment among its limited partners.
DCP IV is expected to target deals between $500 million and $1 billion alongside co-investors, the source noted. Dyal’s GP interest vehicles have infinite terms and distribute profit from the GPs within their portfolios, allowing LPs to exit their stakes via the secondaries market.
Dyal’s private equity portfolio comprises 10 asset managers including HIG Capital, EnCap Investments and Silver Lake, according to its website. The firm also holds 14 stakes in hedge fund managers, owning positions in the likes of Blue Harbour, Capstone Investment Advisers and Halcyon Capital Management.
The latest vehicle comes amid growing interest in the nascent fund of firms model. In 2015 speciality merchant bank Hycroft launched Hycroft Capital, a division dedicated to non-control investments of $50 million to $500 million in established private equity, credit and real asset managers. The firm is aiming to raise at least $750 million for its debut fund.
In July, Blackstone reportedly acquired a minority stake in buyout firm Leonard Green & Partners through Blackstone Strategic Capital Holdings, a $3.3 billion permanent capital vehicle focusing primarily on hedge fund managers. Goldman Sachs Asset Management has also reportedly made a number of similar investments from its two Petershill funds, the latter of which can acquire minority stakes in private equity firms.
AlpInvest Partners is also reportedly planning to raise $1.5 billion for its GP interest strategy.
While a number of firms fundraising for the strategy, the sector is far from crowded, according to Thomas Morgan, co-founder and managing director of Hycroft Capital.
“Dyal III is the only PE-focused fund that’s actually been nearly fully invested, that’s how new this whole thing is,” he said.
“There are five or six fund-based players who are active in this market and that’s about it. Other than that our principle competition is individual LPs and I think the concept of LPs making direct investments into their favourite GPs is one that’s got a pretty chequered history, and it’s rife with conflicts.”
There have been six growth or private placement investments into private equity managers from other investment firms or funds this year, according to data from S&P Global Market Intelligence. The strategy has grown in popularity in recent years, with 2015 and 2016 each having more than double the total deals for 2014.
Hycroft Capital and AlpInvest declined to comment on fundraising. Dyal did not respond to a request for comment.