Thoughts on the independent sponsor model
I was offered a role with an independent sponsor. The upside and carry is huge but I view this potentially a high-risk endeavour. I think there a lot of people fighting for deals, many deals are banked which makes things even more competitive, and getting really good LMM companies that will grow will be tough. I also view independent sponsors as being undermanned and viewed as being lower in the pecking order vs. tradtional PE firms. So the probability of success seems like it would be low. Would love to get other people's thoughts on the independent sponsor world and probability of success.
Sorry but what's an independent sponsor?
Here's a comprehensive explanation
You’re probably right, high risk but high reward. The only thing I can add is that directs is definitely a growing space given a lot of family offices are trying to dis-intermediate their exposure to privates and go around the traditional 2 and 20 fund.
When you say family offices are trying to go direct more now are you saying by making their own investements or using independent sponsors? I'm assuming you view this as a plus in the world of independent sponsors.
Through independent sponsors (although family offices do both). The economics on their deals are tilted more towards carry and less towards management fees which is of course attractive from the perspective of the family office.
It’s definitely still a niche and early stage market but I remember reading about the growth in the space. Plus, every fund these days starts as an independent sponsor so unless they never plan to manage commingled funds (some don’t), then it’s effectively an opportunity to join a new fund at the ground floor.
I'd second this, focus on who's leading the firm
I'm in the LP world and starting to see more and more independent sponsors coming about. Main reason is people who spun out of a fund to start their own shop, fundraising is horrid so they're going the IS route for a while. The butterfly effect I've seen is some of the more forward thinking FoFs are looking at IS deals for co-investments and some are pooling them in a dedicated fund. I can see the appeal as you're betting on people who have to make this work and are more incentivized than a PE fund professional to make a deal hit the numbers. The FoFs love it for sourcing purposes as they will know the GP well ahead of a traditional fund and can back funds 1-2 which have the highest odds for outsized returns of anywhere in PE land.
Work on the advisory side and our primaries team has taken this same strategy. Help them raise a couple of directs (relatively quick and light touch process) and if they are successful it’s an easy way to sign up the next 4-5 vintages of a fundraise. A lot of LPs will decline the direct opportunity (simply cuz it’s not in their mandate) but like the sponsor and tell us to come back for Fund I.
Reprehenderit et delectus pariatur quis veritatis quo quod. Magnam eos molestias quibusdam in in placeat perferendis. Sint temporibus nesciunt eius doloribus dolorum modi ullam. Et distinctio nihil ratione earum illum et. Voluptates cupiditate voluptatem architecto sint iure temporibus praesentium. Est et quis corrupti repellendus et nobis.
Minus cupiditate voluptatem molestiae sed et suscipit iste. Maiores et enim ipsam expedita voluptatem laboriosam provident in. Assumenda quis fuga omnis.
Voluptatibus quis vel sed eos reiciendis debitis voluptatem quisquam. Est pariatur et mollitia qui nulla numquam. Eligendi corrupti qui sit. Placeat nostrum porro tempore in accusamus ad. Dolor placeat nisi perferendis omnis.
Voluptas rem modi sed eveniet ratione. Sit commodi quae at maiores. Molestias neque beatae similique. Repellendus molestias similique voluptatibus id qui libero. Ut ratione et laboriosam non rerum. Inventore aut voluptatibus quia aliquam. Provident aliquid sit sunt quaerat deserunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...