What happened to American Securities?

It sounds like in early July, American Securities laid off 2 partners, 2 principals, and 3 VPs from its investment team. An additional ~5 members of the Resources Group (at various levels) were also laid off. It does not look like any associates were affected. Supposedly management is keeping these individuals on the website to make the layoffs appear less obvious and to make it easier for these individuals to find new jobs. Management apparently justified the layoffs by saying that fundraising was not going according to plan, and that the firm needed to right-size and narrow its sector focuses to account for the declining fund size and to appease LPs. 

So how much of a decline are we talking about? American Securities’ most recent fund (ASP VIII; 2019 vintage) was $7B. The final close for ASP IX is supposed to be August 2024. For a while, the messaging to the investment team was that the goal for ASP IX was ~$7B (with potential upside to $10B). This lackluster (flat) initial target was blamed on challenging fundraising conditions. However, slowly but surely, messaging started to shift, and management/IR started to tell people to lower expectations (again, because of the challenging fundraising environment). For a while, people thought this meant a fund closer to $6B, with $5B as a worst case scenario. When 2024 rolled around, management/IR almost entirely stopped sharing fundraising updates, and as months passed by, people started to realize that the fundraising process was completely falling apart. Then in early July, employees were told that the most likely outcome for ASP IX is $3B, a ~57% decline from the $7B low target (the size of ASP VIII). It sounds like most people think the outcome will likely be sub-$3B.

So what factors contributed to this decline? In no particular order: (i) rushed diligence during Covid led to bad investment decisions where high multiples were paid for new platforms (up to ~20x in one instance), (ii) apparently the majority of current investments are underperforming, and several companies are facing very serious liquidity issues, (iii) two investments in ASP VII (MCS and AirMethods) were written off entirely (supposedly around $750M equity), negatively impacting overall fund performance, (iv) the founder, Michael Fisch, has been going through a very messy public divorce battle (Google Michael Fisch divorce), and it looks like he has been doing quite a bit of online reputation management in an attempt to cover up some of the bad publicity, (v) Michael Fisch effectively controls all investment decisions, and while it sounds like an “IC” was put in place in recent years, it was perceived as more of an attempt to appease LPs, and not as a means of creating a more thoughtfully organized partnership with a real succession plan, (vi) apart from a small percentage that was sold to Dyal several years back, Michael Fisch continues to own the entirety of the management company, further exacerbating partnership/succession concerns, (vii) there is a general lack of transparency, leading employees (and LPs) to feel like they are being misled, (viii) in recent years, the overall quality of new hires has declined as management/HR has touted the benefits of DEI, abandoning meritocratic hiring practices in an effort to artificially create a more diverse team (e.g., apparently HR would not interview highly qualified male candidates purely because they wanted more females), and (ix) it also sounds like culture has taken a turn for the worse in recent years as investment team leadership (and ways of thinking) has aged significantly and people with questionable leadership qualities have been elevated to positions of power. For example, it sounds like the current head of the investment team is considered to be very quiet and unapproachable. This does not sound like a recipe for success if the objective is to have a cohesive team and make strong investment decisions.

There are probably more issues, but these seem like some of the key ones. 

So what does this mean for American Securities? Many top performers saw the writing on the walls over the last two years and left on their own accord (e.g., a Resources Group partner left for GTCR, an Investment Team VP left for BayPine, an Investment Team VP took a CFO role, a Resources Group partner retired, and a Resources Group VP left to start her own consultancy). While most people agree that the two partners who got laid off had it coming (bad investment decisions, generally disliked, poor leaders), people were genuinely surprised by some of the decisions to lay off mid-levels (bright and committed to the firm). This begs the question: if management is willing to lay off these individuals, then who’s next? It appears as if fundraising struggles have have pushed the firm into self-preservation mode where nobody is safe. Given the drastic reduction in fund size, it seems like either more people will get laid off, or more people will jump ship, or likely both. Management has indicated that the plan for ASP IX is to deploy it as quickly as possible with similar check sizes and then quickly move to raising a larger ASP X. This seems unlikely given LPs would look to ASP VIII’s performance, which, as mentioned previously, is not going well. The future of American Securities seems really uncertain. These actions come across as a last-ditch effort to save fundraising (and individuals’ carry dollars) by claiming a sector focus / headcount reset is necessary, and then rushing to LPs and saying that actions speak louder than words. It seems unlikely that this strategy will work as intended, as most LPs have probably already made up their minds due to many of the reasons mentioned above, but time will tell. If LPs are interested in industrials exposure, it feels like there are a number of materially less risky GPs they can shift commitments to. It certainly feels like American Securities is on the verge of decline. Do any of you have any other insights? Are similar layoffs happening elsewhere?