Is Sycamore barking up the wrong tree?

The largest buyout so far this year, Sycamore's $6.9 billion take-private transaction of office supply retailer Staples, put the retail- and consumer-focused firm on the private equity map.

“It's a huge deal in a space that is obviously experiencing a paradigm shift,” said one fund of funds that is not an investor with Sycamore. “I don't get it.”

“He's a brilliant, inventive contrarian investor who's been terrifically successful,” said the founder of a New York-based consumer-focused firm, of his Sycamore counterpart Stefan Kaluzny.

Kaluzny founded the New York-based firm in 2011 after leaving Golden Gate Capital, which focuses on several verticals including technology, industrials, financial services and retail and consumer. His first fund, Sycamore Partners, quickly closed on $1 billion ahead of its $750 million target. Sycamore Partners II closed on $2.5 billion in 2014.

Investors in the firm include Regents of the University of California, Allstate Investments, Virginia Retirement System, Lockheed Martin Pension Plan, and West Virginia Investment Management Board, according to a placement agent source familiar with the firm. The bulk of public pension plan money is in Fund II.

Fund I has performed very well for investors. As of 31 December, it had generated a 57.6 percent net internal rate of return and a 4x investment multiple, according to data from the Regents of the University of California. It is too early to tell how Fund II is performing.

Another fund of funds manager who did due diligence on Sycamore's first fund, but did not invest, said that “those numbers are mind-boggling”.

He added that the reason for passing was that Sycamore felt like a one-man band, with Kaluzny, who brought several other former investment professionals with him from San Francisco-based Golden Gate, running the show. For example, Peter Morrow, now managing director at Sycamore, came along with Kaluzny in 2011 after spending nearly a decade at Golden Gate.

“He's brash and doesn't lack confidence,” the fund of funds manager said. “They're pretty aggressive and this is in character with what they do,” he added regarding the Staples deal. “Stefan is an impressive guy but they're clearly a one-man band.”

At the same time, other people interviewed for this story noted that Sycamore is secretive, so it is difficult to paint a clear picture. The firm declined to comment.

Sycamore plans to split Staples into three components: US retail, Canadian retail and corporate-supply units, according to the Wall Street Journal.

This is the strategy it employed with retail conglomerate Jones Group, which it bought for $2.2 billion in 2014, and broke into pieces to be sold separately. According to Sycamore's website, the firm has 16 portfolio companies, including four already exited.

The chief executive of another private equity firm focused on the consumer sector said that Sycamore has made and continues to make a “massive bet on the brick-and-mortar retail sector, which, at best, might currently be characterised as counter-intuitive.”

He added, “Good leadership, good firm, but questions remain as to whether their investment strategy will play out with all of the transition in retail at the moment.”