Align, Keystone, Graham, GEM. Have all launched vehicles which back independent sponsors. Was curious if the group could also name other managers doing this?
I like the independent sponsor space but I am not sure how these funds work. From my experience independent sponsor transactions are structured with a ton of fees that really eat into returns (and some are justified as it can be difficult for these small teams to keep the lights on ). I am not sure how these products work considering there will be another layer of fees now on top of it. Additionally, I have noticed these funds are on the lower end of size, GEM is 450, Align is like 250 etc. So I am not sure how the funds themselves are staffing teams to focus on this. If others had insight or opinions I would welcome them.
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I can speak to GEM. They're an OCIO business that uses that revenue to raise external capital for a funds business so they were already doing this work for and will become a larger % of their business long-term. The fees component is largely overblown and not that different than normal PE except the carry is deal by deal, obviously. Many managers in this space have tiered hurdles that incentive risk taking. Some view this as bad others view it as good, that's where DD'ing your manager/deal matters. GEM has a strong thesis small fund 1-3s and IS deals are the way to actually make 25%+ returns consistently, agree with them or not. Their track record is really good and they've backed some grand slam managers out the gate. Their fund was a 1 and done close and was higher than $450m too, had a lot of blue chip LPs you could want on the endowment and FO side.
Any idea if the 25% is net or gross to their investors?
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