Side Letter: What families want from direct PE; a16z’s retail bet; Altas plays long game

In light of Monday's state funeral for Queen Elizabeth II, there will be no Side Letter until Tuesday. Multi-family office Stonehage Fleming launches deal platform. Plus: Venture giant a16z is betting on massive retail demand for alternatives; and long-hold specialist Altas is aggressively bolstering its ranks. Here's today's brief, for our valued subscribers only.

Just happened

Hill: Not complacent about increased competition (Source: Stonehage Fleming)

Family tie-ups with direct PE
Private equity firms have been making moves to capture more private wealth capital of late, with KKRAres Management and Blackstone all throwing their hats in the ring or bulking up teams over the past year. It’s against this backdrop that Side Letter sat down with Richard Hill (above), head of corporate finance and direct investments at multi-family office Stonehage Fleming to find out more about what family offices and HNW clients want out of PE.

The London-based manager, which has around £60 billion ($69 billion; €69 billion) in assets under management, fiduciary oversight and administration, has around 60 clients that use its deal-by-deal direct private equity investing service. According to Hill, clients are drawn to direct private equity (as opposed to funds) due to shorter lock-up periods, a quicker return of capital, and being able to select which deals to invest in – many of the firm’s clients are entrepreneurs themselves who are used to making their own investment decisions.

Stonehage, which focuses on growth equity, VC and real assets opportunities with its directs team, is about to launch a deals database platform that will allow its clients to assess and invest in direct PE opportunities, as well as view reporting around investments.

What does Hill make of the increased competition for private wealth capital? “You’ve seen all the investment banks develop their family office businesses now, which is definitely a marked change from dipping in and out of the market, which was the case prior to that. They’re now firmly committed to it. I’m not complacent about it at all,” he says.

Heightened interest in private wealth brings both increased competition and benefits to the market, Hill adds.

“I’m also positive in that this structural shift is leading to more assets going into the [private markets] asset class or that sector. I think there’s more for everybody. There’s a bigger pie.”

Stay tuned for our full Q&A with Hill in the coming days.

If at first you don’t succeed…
SoftBank’s mercurial chief executive Masayoshi Son hasn’t exactly covered himself in glory since launching his mammoth Vision Fund back in 2017. High-profile missteps such as WeWork and Didi Global have helped to contribute to some staggering losses across its Vision Fund unit, which now comprises three vehicles, including one focused on Latin America and one funded entirely by SoftBank and its executives. One might reasonably expect a fund manager to take stock after setbacks like these, focusing solely on rebuilding value in their existing portfolio.

Son, it seems, has other ideas. According to the Wall Street Journal, SoftBank is considering launching yet another Vision Fund. The Japanese tech conglomerate would again use its own money for the new vehicle, rather than returning cap-in-hand to potential LPs. The WSJ says this move is in part being driven by Vision Fund employees, given that the current funds would require making back their losses before staff could receive bonuses. Given that Son warned back in August that headcount might “need to be reduced dramatically” if its investment activity declined, this latest fund may be less hubris, and more a bid to keep hold of the unit’s remaining talent.

Alternative sources of funding
Venture giant Andreessen Horowitz seems to be bullish on the future of retail participation in alternatives. The VC has led a $58 million Series B fundraising for Titan, alongside existing investors General Catalyst, BoxGroup and actor Ashton Kutcher’s Sound Ventures, per a statement. A group of celebrities, including actor Will Smith and basketball player Kevin Durant, also invested in the round. Titan bills itself as the first direct-to-consumer, primarily mobile investment platform. It invests the money of everyday investors in long-term strategies, focused on stocks primarily and nascent offerings in assets like real estate and private credit – including the Carlyle Tactical Private Credit Fund, which has a $2,000 minimum.

There’s been considerable growth in the ways alternatives players are able to come down market, from the feeder fund model employed by groups such as iCapital, to the direct-to-consumer model from the likes of Moonfare, to the diversified 40 Act funds managed by groups such as StepStone Group and Ares Management. Most of these routes still require investors to meet certain wealth criteria or to invest via a qualified proxy.

The reception to apps that open alternatives to the mass market remains mixed. In a February interview with PEI, Marco Bizzozero, head of international at iCapital, described having a B2B model (as opposed to a B2C) as a “line of defence” against uninformed investment decisions.


Playing the long game
Canadian long-hold specialist Altas Partners has tapped senior executives from Hellman & Friedman and Cinven as it seeks to raise its latest flagship, our colleagues at Buyouts report (registration required). Paul Emery joins as partner from Hellman & Friedman, where he was a director for 12 years. Michael Korzinstone, also a partner, was previously a senior principal at Cinven. The appointments form part of a recent hiring spree, with the firm having added at least five other executives from the likes of Advent International and Clairvest since the beginning of the year.

The firm is targeting as much as $5 billion for Altas Partners Holdings III. Atlas has a long-duration PE strategy, investing in just one or two North American companies per year, with ticket sizes between $400 million to $1 billion. With exit routes looking a little trickier in the near and mid-term, long-holds could be a little easier to stomach for executives expecting carry than they might have been in a period of frenetic exit activity.

Today’s letter was prepared by Alex Lynn with Adam LeRod James and Carmela Mendoza.