Goodhart Partners is launching a platform to acquire minority stakes in private capital investment managers – particularly private equity and private debt firms.
The platform, called Volunteer Park Capital, aims to make several investments in North America and Europe. It will focus on mid-market debt and equity managers in private markets but will also look for opportunities in distressed debt, infrastructure, real assets and secondaries.
It is understood VPC is raising a fund for the strategy, targeting $200 million. The fund, which will have a five-year investment period and a 15-year life, will look to back eight to 10 management teams, writing equity cheques of between $20 million and $25 million.
The fund has committed capital and will soon hold a first close. It is understood the fund is expected to hold a final close by the end of the first half of 2019.
VPC declined to comment on fundraising.
The capital will be focused on financing GP commitments, funding growth of management companies and facilitating generational transfers.
Michael Daley, who left his position as managing director of investments at global multi-boutique Pacific Current Group in June to establish VPC with Goodhart, told Private Equity International that the firm is looking to service smaller groups that don’t have options for financing growth, other than personal debt.
“We’re looking to invest with established managers [that] have at least one fund under their belt, who are looking to grow, who are looking to maybe step up into a more institutional client base, who need capital to invest in resources, to make GP capital commitments alongside their investors, and frankly haven’t generated a lot of capital out of their businesses yet, so don’t have the capital to invest back in their business.”
Daley said that while it is “definitely not our intent” to back spin-outs, such a situation is not “out of mandate” for the fund, although it would have a “much higher hurdle”.
VPC 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 investment in private capital firms, most likely in London, as an investment trust.
Daley said he doesn’t see the challenge of exiting as a risk factor.
“One other possibility, and certainly a realistic one, is that some of these managers that we back raise a couple more funds and then don’t [raise any more],” he said. “For us, that’s still a good investment. We don’t underwrite any of our investments to an exit in any time period – we underwrite 15 years of cashflow to achieve our target returns. If that happens where there isn’t the generational transfer, there isn’t a strategic buyer, we still expect very good outcomes from our investments.”
Daley said VPC will have “very little” say over the day-to-day running of the firms it invests in.
“We have a very strong ethos that investment management firms should be run by the investment management teams,” he explained. “We would have some level of protections to just protect our security, but truly, for us, we believe the best risk-mitigant for our investment is alignment with the management team, and that’s how we try to structure our equity security – to be as similar to, if not the same as, management.”
The fund will offer its LPs co-investment in the management teams, and will also seek to secure co-investment rights with the underlying managers that it will pass on to its investors.
Daley said VPC offers “more than just capital” to management teams.
“We will deploy our resources, including our distribution capabilities and our fund structuring capabilities in Europe for those that don’t have it, which the US managers won’t, on behalf of our partner companies.”
Goodhart has a Luxembourg-based fund complex and a Luxembourg SARL, through which it can launch funds for US managers. It can also provide fund placement services in London.
The firm was founded in 2009 in London and partners with boutique investment teams to provide capital, operational and regulatory infrastructure and distribution services.