Alex Navab, former managing director and head of Americas for private equity at KKR, is understood to look to raise $3 billion for his debut private equity fund. If successful, Navab Capital Partners’ fund will be the largest-ever debut private equity vehicle raised by an independent firm.
To assist him in this effort, Navab has recruited Carlyle’s Ram Jagannath, Warburg Pincus’ Annette Rodriguez and Baupost Group’s Robert Berlin as partners, and also added ex-KKR senior executives to the team.
The Goldman Sachs Petershill programme is a strategic partner.
Navab spoke to Private Equity International about his vision and plans for Navab Capital Partners.
How did you spend the year after you left KKR in 2017?
I had never taken a garden leave in my 25 years of working, and this was the first time I had time to examine what I wanted to do with my life. I wanted to do only two things: travel and work on causes close to me.
We [travelled] for three months and I gave half my time to the non-profit Robin Hood, and through Robin Hood I got involved with other groups in poverty elimination.
I read a lot of books on social impact and philanthropy, and also thought about what I wanted to do. I was very fortunate to have a number of opportunities to join other private equity, hedge fund and investment management firms, as well as build PE platforms within large asset management firms. However, at the end of the day, I kept coming back to the realisation that my true passion and ambition was to build my own firm.
What kind of firm are you looking to build?
I want to have a private equity-centric firm that takes full advantage of all the capabilities of private equity. Private equity will help us grow into an investment firm, [and then] we may add other investment platforms that are complementary and synergistic to private equity and enable us to create competitive advantages in transactions we pursue and enhance our returns to our LPs.
Great firms have great cultures and I want to build that at the new firm. Developing a very strong culture takes a lot of work, but the smaller you are the easier it is to implement.
Culture starts with the values you want to have in your firm, and those are as important as the strategy. Then you can recruit great people, put in place a great strategy and make great investments. Our values include integrity, partnership, excellence, authenticity, diversity and inclusion, innovation, creativity, compassion, trust and respect.
Armed with these values, we intend to do well by doing good.
What’s the firm’s investment sweet spot?
Given the success of the industry in putting capital to work and generating great returns, there is a huge migration of the industry towards the larger funds. In the last decade, the market has become bifurcated, and there is a sweet spot between mega-funds and smaller funds. That is where we hope to be.
We think it is a less crowded space in the $3 billion and $5 billion to $10 billion range. Who is doing those deals that the mega-funds used to do until a decade ago? There are still a lot of companies that need capital or should be purchased in that zone.
My view is that if you have people like my team who have spent a lot of time in that area (I spent 25 years in that area) doing deals of that size, and that have networks and relationships in that segment, then we can have credibility in that area.
Will you look to raise capital on a deal-by-deal basis?
Funds take time to raise, but the environment today in terms of raising capital and people willing to give you equity is really good.
If we find good opportunities, then we certainly would be open to finding capital for them even without a fund. However, it is a bit of a yin and yang situation right now. We will be patient and take an opportunistic approach. But we are going to knock on doors, build relationships and maybe find a great opportunity.
How did you put together your team?
I wanted to make sure the infrastructure of the firm was in place before we started fundraising and investing and wanted to have a very professional recruiting process.
We cast a very broad net and interviewed a lot of people. We targeted and interviewed partner-level professionals from private equity and investment firms. And we will continue to interview and meet people until we reach a core number.
I have had three partners join me on the investment side. I also made sure we hired all our other leaders early – our CFO, head of capital raising, chief administrative officer, head of HR and the head of the philanthropic foundation.
We are still interviewing for investment partners and will probably add one or two more over the next couple of months. And then one or two operations leaders like the chief technology officer and general counsel.
Are you building out the operational bench?
We are working on this. Since we don’t have portfolio companies yet and are not actively looking at acquisitions, we can be a little bit more measured about when we add that to the whole team.
I want to avoid building a large operations team before we actually have the portfolio. My view is that we will have a senior operating partner in the mix in the next couple of months, and then work with that partner to develop what the right construct for an operating group within the firm might be. We also have to decide how much of that should be in-house and how much should be outsourced. Models are constantly evolving and what worked 15-20 years ago may not work today.
How are you integrating philanthropy into the firm’s strategy?
Philanthropy and social impact are very important to me and therefore to the mission and culture of the firm. That was one of the things I debated when I was away for a year after leaving KKR. How do I combine philanthropy and investing at the same time?
We are not looking to raise a social impact fund or raise money for philanthropy. Nor is it incorporated into the investment strategy. Rather, this is to offer a channel to our team members who want to have a higher mission in life.
To be clear, the private equity team will be focused on generating great returns, and philanthropy will have its own team. We have set up a foundation that will be supported by the profits of the firm and its investment professionals. That has nothing to do with the pool of capital we raise from investors.
Apart from the financial support, the firm’s employees will lend their time and expertise to the causes they want to support. As a firm, we will look to apply learnings from private equity to make meaningful impact.
I wouldn’t want to impose my causes on the firm, but I lend my support to poverty and homelessness alleviation in New York.