Five questions on Pritzker Private Capital’s largest fund

The direct investing family office gathered $2.7bn in about nine months for its third vehicle.

Pritzker Private Capital last month held a $2.7 billion final close on its third vehicle, one of the largest family investment vehicles raised in North America.

The firm, which invests on behalf of the Pritzker family and other wealthy families, began raising capital for Pritzker Private Capital III in September with a $2 billion target. PPC III is 50 percent larger than its $1.8 billion 2017-vintage predecessor and has made two investments thus far.

Private Equity International spoke with Michael Nelson, a partner and head of investing at the firm, and David Gau, a partner and head of operations, on the capital raise and how it plans to deploy the vehicle.

Congratulations on the final closing of your latest investment vehicle. What was the capital-raising process like?

Michael Nelson, Pritzker Private Capital
Nelson: PPC is not constrained by the traditional PE model

Michael Nelson: We’re grateful and humbled at the support we received. It’s a testament to two things. First, the establishment of family direct investing as a real competitive alternative to traditional private equity and to strategic buyers. We’ve been at this a long time – 20 years now – but raising this magnitude of investment vehicle further establishes this type of investing as a real competitive force in the industry.

Within that asset class, PPC is one of the leading family direct investing firms in North America. We think we bring three attributes to bear to mid-market family direct investing that we feel are unique in the market.

Those are the Pritzker family legacy of business building, an institutional quality team – the combination of investment partners and operating partners leading the firm together – as well as our flexible, long-dated capital base that allows us to build businesses for the right duration.

We’re not constrained by the traditional PE model of thinking about an exit the day you buy a business. We focus on building companies for the right duration, and those attributes are appealing to family and entrepreneur-sellers. That allows us to see investment opportunities that others do not.

Tell us about the investor base – how different is PPC III from prior vehicles? And what were questions your LPs frequently asked during the capital raise?

MN: We were thrilled that our existing LP base from PPC II supported us with more than 100 percent of capital commitments contributed to PPC III. We had terrific support among our existing LP base and then we stuck with our philosophy of partnering with leading institutions and families that like to build businesses for the right duration.

We’ve added a number of those types of investors – both family and longer-term focused institutions – and we were successful in our goal of broadening the LP base to include investors from Europe and Asia. It’s largely consistent with PPC II in terms of the types of investors, but we were able to add investors that broadened our geographic scope.

We focus on investors who like what we are doing, they like the combination of that family pedigree with the institutional quality team and that flexible capital base. Investors that are focused on a quick flip, high IRR-type situations were not investors that we targeted. That’s not the type of investing we do.

David Gau, Pritzker Private Capital
Gau: supply chain disruption and inflation headwinds are real

David Gau: Given the timing of those conversations, LPs asked us about the performance and resiliency of our companies. They were also focused on how we were navigating a largely uncertain time.

Our companies fared quite well – a lot of good wins and a lot of hard work, even amid a lot of uncertainty. We invested in essential and resilient businesses, which performed very well in 2020.

PE recorded its most active first half since 2008 in terms of deals, fundraising and exits – how are you thinking about this in terms of risk and opportunity where having scale and more resources seems to win out quicker?

MN: I would say that the vast majority of those types of transactions are more traditional PE-owned businesses that are being sold.

If you look at our investments, these are primarily founder- and entrepreneur-led businesses, and a third category that we call management teams with influence. These might be a company that’s owned by a PE firm but the founding management team still owns a substantial share and continues to run that business. As a result of that focus, the vast majority of our investments are completed outside of the traditional auction process. We focus where the seller values those three attributes PPC brings: family pedigree, operating model and institutional quality team, and a flexible capital base.

DG: The flexibility of the duration of our capital has allowed us to build a deep and impactful group that we think brings structure, discipline, process and resources to our companies to free those management teams to focus solely on building great businesses. When you unshackle the traditional PE time constraints, we think that optimises businesses over the long run.

What’s your biggest concern when it comes to deploying the fund?

DG: Our companies are focused on managing supply chain disruption and inflation, as many businesses are. Those headwinds are real, and we are navigating these issues like everybody else. We like to partner with strong management teams, and we’ve found that our companies are sharp, well-prepared and diligent in executing through times like these.

MN: We’re fortunate in that we partner with market leaders that are able to manage inflation and manage pricing as they focus on growth. We’re fortunate that our businesses have that capability.

As a firm, we are always focused on our people. We are growing, our strategy is performing well and we are looking for great talent.

As we think about the strategic direction of the firm, it really comes back to staying the course. We’ve had terrific success in deploying our first two vehicles and now partway through PPC III by focusing on those core attributes and targeting family- and entrepreneur-owned businesses that are market leaders. We don’t plan to stray from that strategy. We plan to stick with it and continue to focus on what’s really worked well thus far.

How do you think direct investing will evolve in five to 10 years’ time? 

MN: We believe that family investing groups will continue to play an increasingly prominent role in the direct investing market. The completion of our new vehicle, among the largest family investment vehicles in North America, shows that there is substantial interest in our approach among family investors and family-led companies.