Structured Equity Investing
Can anyone help identify investment firms/groups that focus on "structured equity"-type investments that aim to provide downside protection combined with mid-teens to low-20s% returns? (generally convertible preferred equity with PIK + warrants + liq pref)
I think some of the growth equity shops (especially those tied to megafund PE firms like Blackstone TacOpps/Growth or Apollo Hybrid Value) do this kind of thing, but I can't find a lot of firms dedicated to this kind of investing.
Also curious
17 capital specializes in pref/structured deals, so does Whitehorse liquidity partners...but these are secondaries shops not growth equity, so not sure if that’s still of interest/relevant to what you’re looking for
Most special situations strategies like the ones you mentioned will look at structured equity as part of their product offering. Same for late-stage growth.
Agree, late stage growth is also interesting depending on what OP is looking for.
Sixth Street, Apollo Hybrid Value, Blackstone Tac Ops, Brookfield Special Sits, KKR Dislocation Opportunities, Oaktree Special Situations, Carlyle Strategic Partners to name a few.
Many others.
Fortress
Apollo Hybrid Value
BX Tac Opps
Sixth Street
Atalaya
Crestline
Victory Park
Origami
KKR Special Sits
Oaktree Strategic Credit
Huron Flex Equity
Onex Falcon
Kennedy Lewis
Harvest Partners too.
Anyone have a sense of what comp is like in this career path? Assuming it’s higher than PC (including HPS) but lower than most traditional PE (especially the MFs) & top VC like Sequoia.
Levine Leichtmann
Anyone have any insight into what comp looks like at these kinds of shops? Similar to MF or more similar to DL?
Think about what these investing strategies provides for its customers. Structured equity is downside protected investments that have capped upside. It’s capital that sit between high yield debt and equity, often in the form of preferred w/ warrants. These instruments were designed to provide risk adjusted mid-teens returns by playing around with the capital structure of a business. By definition, there is less an investor needs to worry about the operating performance of the business given where they sit in the capital structure. You’re never going to make 25%+ IRR, but it’s going to take a seriously draconian operating case to get to 7-8% IRR. Given the returns thresholds, fees are typically lower as well. GPs can’t charge LPs 2/20 for these types of strategies. It’ll typically be 1/15 or 1.5/12.5. A lot of MF PE firms have gotten in this business to grow AUM while taking advantage of deal flow that might go to their PE arm, but the return profile doesn’t necessarily meet their thresholds. Similarly, these businesses have unique attributes to them hence why they take this “untraditional” source of capital. This all translates to less carry compared to your PE counterparts (all else being equal), but I hardly doubt it would matter for anyone unless you’re at the top. The folks in this type of investing could range, but the typical groups you hear of like tactical opportunities or hybrid value are extremely sharp (equal to the rigor of their PE groups). I would just caution you from the random MM PE firms that are jumping into this space.
I would disagree with the blanket assessment that structured equity investments offer capped upside. I am at a special opportunities firm akin to Blackstone Tac Opps / Apollo Hybrid Value / Carlyle Credit opps and the way you structure an investment is obviously how downside protected you are relative to upside equity appreciation. Ex. in a convertible pref. equity deal with a liquidation pref. and 8% pref. return or conversation to 30% of the equity; not only is it downside protected because you are contractually senior to the common equity with the liquidation preference and pref. return, but you are also given the opportunity to convert to common equity at a certain valuation where it makes sense to convert relative to the liquidation pref. and pref. return. Likewise, with participating pref. equity you oftentimes receive a liquidation preference, preferred return, and conversion to common equity.
Note that the above deals where you are getting meaningful economics via both equity appreciation and downside protection (convertible pref., participating pref. , etc.) have some serious hair to them (which is why Apollo or BX are involved), relative to a mezz firm that is offering 12% PIK pref. equity paper to lower the equity contribution from the Sponsor (which is also considered structured equity).
I don’t disagree with you, but the basic premise of a company accepting those terms is in potentially distressed or idiosyncratic situations where they have to take on pretty onerous terms with a lot of bells and whistles from the financial sponsor. You’re not playing in that space hoping to get a home run but you’re protecting downside while getting a high risk adjusted return.
any thoughts on Bain Capital Distressed & Special Situations?
Thanks for your insight, this is helpful. I’m looking to learn more about the space and was wondering if you could talk more about your experience in structured equity and what the job is like?
Where could I learn about this stuff?
Any chance you could DM me and explain this structure to me? This came up at work and am still confused
Untrue our group (think someone like APO HV) charges 2/20
To add some more - Harvest, Linden, Caltius, Riverside Company, Macquarie (I think), PineBridge
Any comp numbers?
Also interested in comp
Thayer Street is another firm doing this down market - believe it was started by some former Tac Opps guys.
Interesting thread so thank you all for the insights. Where do associates from these top groups go if they dont stay at their firms. Thinking the APO hybrid, Blackstone Tact Opps and Sixth Street type people
Checking in to see if anyone has general comp numbers. I’d imagine carry & comp in general is much better here than in standard private credit
Following
Are hours better at MM structured capital firms (think Harvest Partners) since you generally don't have control and are making more passive investments? For someone currently working in control LBO PE, I'm wondering if a move to a structured capital firm could provide an improvement in work life balance.
Bump, also curious
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