Golub Capital has joined the ranks of alternative asset managers that sell a portion of themselves to fund firm growth in a deal with Dyal Capital Partners.
New York-based Dyal purchased a minority stake in alternative lender Golub in a deal that will let the latter “expand the firm’s capabilities to provide reliable financing solutions to its private equity sponsors and attractive, consistent returns for investors in its funds”, it said in a Friday statement.
A Golub representative could not be reached, while a Dyal spokesman declined to comment.
The investee lends senior secured debt to private equity-backed companies through closed-end funds and business development companies. It also manages collateralised loan obligations, invests in venture capital-backed businesses and runs a broadly syndicated loan platform.
Capital for the deal came from Dyal Capital Partners IV, according to a source familiar with the situation. Fund IV is currently seeking $5 billion and had reportedly collected $4.6 billion as of April. Dyal generally invests in less than 20 percent of a firm, and the stake is permanent capital – there is no exit strategy, the source said.
Asset managers are often valued at 10x-14x EBITDA.
Golub is the latest deal for Dyal this year after having put money into several other alternative investment firms, including Clearlake Capital Group and Vector Capital – both of which planned to use some of the investment proceeds to build out their credit businesses.
Clearlake, which invests in distressed debt and turnaround private equity, plans to seed a performing credit fund, a source familiar with the situation told sister publication Private Debt Investor. For its part, Vector will “further accelerate the growth of our credit business”, firm founder and chief investment officer Alex Slusky said in an April statement announcing the transaction.
HPS Investment Partners – which is currently investing its HPS Specialty Loan Fund 2016, a direct lending vehicle with $6.5 billion of deployable capital, including leverage – also sold a minority stake to Dyal earlier this summer.
“Demand is building from institutional investors [for minority stakes in alternative asset managers],” said Jeff Hammer, a Houlihan Lokey managing director and co-head of the firm’s illiquid financial assets practice. “The predictability of the income stream from funds with long-term, locked-up money presents an attractive investment opportunity.”
LPs have come to appreciate indirectly owning minority stakes in other alternative asset managers because it allows them to receive a portion of private fund fees rather than pay the levies.
“[Through minority stakes in alternative asset managers] the investors also see the fees they are paying to these managers,” another fund manager that invests in the space said. “When you offer these LPs to sit on the same side of the table of the GPs, it can be a pretty compelling trade.”
In addition to the management fee and carried interest income streams, LPs will also see the gross return from the given fund manager’s general partner commitments, this person noted.