Year in Review: The return of fundless sponsors

2015 saw the return of a rare but not unknown private equity beast, the fundless sponsor. Following its report in July on Juniper Alternative Investment Fund, PEI spoke most recently to Joe DaGrosa of General American Capital Partners to ask about the strategy.

In July, Private Equity International reported the launch of a fundless sponsor vehicle, the $3.2 billion Juniper Alternative Investment Fund founded by Louis Grabowsky. The vehicle targets mid-market investments focused on the mid- and southwest US.

The vehicle is unusually structured, investing on behalf of a group of limited partners on a deal-by-deal basis rather than raising a blind pool, but it is not the only one we’ve reported on this year.

PEI discovered another this month: General American Capital Partners. 

The firm was founded by 20-year veteran Joe DaGrosa who told PEI: “Our model is pretty straightforward. Since we’re doing deal-by-deal, the advantage to the investors is they’re not paying management fees on undeployed capital.”

Unlike a blind pool, the fundless sponsor lays out each separate investment case to its limited partners, which DaGrosa argued paves way for greater transparency and discipline in finding and making good deals.

Given current high prices and fundraising levels, traditional fund managers feel the pressure to deploy capital in transactions that might be overpriced. This puts the fundless sponsor at an advantage because the manager has the option not to pursue a deal due to price or other reasons, DaGrosa said.

“We’re not here to collect management fees,” he said. “We’re here to deploy capital smartly.”

In November, PEI reported on Revelstoke Capital Partners, which was founded by another team of experienced GPs from KRG Capital and Eos Partners, and also launched as a fundless sponsor in 2013. The trio eventually formed a $303 million fund, which closed on its hard-cap in November this year, but the deal-by-deals helped establish a track record for the team.

MVision founding partner Hussein Khalifa had told PEI that one reason for pursuing such a strategy is that some successful GPs may want to wind down their business over time without putting themselves in another 10-year fund structure.