Perry Golkin is turning PE on its head

The KKR alum, who spent a quarter of a century at the firm, is breaking with the traditional private equity model with his latest fund, and aiming for better GP/LP alignment.

Perry Golkin, chief executive of PPC Enterprises, could easily be considered one of the pioneers of private equity in America.

He joined KKR in 1986 as one of the first dozen hires, after what at the time was considered a traditional path to private equity – he began his career as a certified public accountant with Price Waterhouse and then became a lawyer for Simpson Thacher & Bartlett, KKR’s East Coast advisors.

At KKR, he was involved in some major deals including Primedia and Willis Group, and focused on investments in financial services as well as on fundraising and investor relations.

Spending so much time with LPs must have given him a good perspective on how to best cater to investors, and since leaving KKR after about 25 years at the firm, his approach to the asset class has been anything but traditional.

In 2012, he founded PPC with another KKR alumnus, Michael Tokarz, with the goal to raise an LP-friendly evergreen fund, Public Pension Capital, targeting predominantly public pension plans. Tokarz left KKR in 2002 to take over leadership of MVC Capital.

PPC raised $640 million as of April, according to a filing with the Securities and Exchange Commission, from limited partners including the pension plans of Oregon, Minnesota, Michigan, Kentucky Teachers and San Diego.

It is now back in the market to raise more capital, according to an investment advisory council report from the Minnesota State Board of Investment from the end of 2017. Since then, Minnesota has committed a follow-up $100 million investment to the fund, according to a person familiar with the fundraising.

New York-based PPC was not available to comment.

The thesis behind PPC’s evergeen vehicle revolves around minimising time spent on fundraising, administration and compliance and instead focusing on dealmaking and value creation in the US and Canadian lower mid-market.

It is also offering fees that are much more LP-friendly than the majority of funds in the industry. It has modified the traditional private equity model by creating a board of investors, which sets the management fee budget every year. The management fee for the 12 months ended 1 April is 1.49 percent of committed capital and will go down every year as the fund grows.

The carried interest structure also differs. It is initially set at 5 percent if the annual internal rate of return of the fund is in between 4 and 8 percent, jumping to 10 percent when the annual IRR jumps above 8 percent, providing better alignment between GPs and LPs.

“Public Pension Capital’s goal is to have meaningful substantive change in the relationship between fund manager and investors,” the firm wrote in an October 2016 presentation to the San Diego County Employees Retirement Association.

Ultimately, the firm’s goal is to have between 15 and 20 investors providing ongoing capital of about $1 billion.

If Golkin and his colleagues don’t deliver, his head is on the line. LPs have the power – through the board – to dismiss and replace the 64-year-old Brooklyn native if they are dissatisfied, and can also unilaterally withdraw their unfunded commitment every year after an initial three-year investment period.

It is early days in the life of the fund, but as of 30 September, the 2014-vintagehad  posted a 30 June net IRR of 10.45 percent a 1.1X net investment multiple.

If Golkin and PPC continue on this trajectory, the firm should successfully raise the additional $260 million to reach its $1 billion goal.