Dyal Said to Get $5.3 Billion for Stakes in Private Equity Firms

  • Starwood, KPS, Silver Lake among fund’s current holdings
  • Fund demand exceeded target of $2.5 billion to $3 billion

Dyal Capital Partners, a unit of Neuberger Berman Group, finished gathering $5.3 billion for its third fund to buy minority stakes in alternative asset managers, a person familiar with the matter said.

Dyal Capital Partners III, the firm’s first pool of capital to focus exclusively on private equity managers, well surpassed its target of $2.5 billion to $3 billion and reigns as the largest among funds that take passive interests in the asset class. It started collecting the money last year and didn’t have a hard cap, or a maximum amount agreed to with investors.

To end the fundraising process, Dyal gave interested backers a deadline earlier this year, after which allocations were limited, said the person, who asked not to be identified because the process is private. The fund is structured as an evergreen pool that has no formal end date for exiting investments.

Alex Samuelson, a spokesman for Neuberger Berman, declined to comment on Dyal’s fundraising.

Run by former Lehman Brothers Holdings Inc. colleagues Michael Rees and Sean Ward, New York-based Dyal was one of the first movers outside of banks to create investment funds that acquire stakes in private equity and hedge fund firms. Blackstone Group LP, Goldman Sachs Group Inc., Credit Suisse Group AG and Carlyle Group LP are among firms that have raised or are preparing to gather money for the strategy, seeking to tap stable fee streams generated by private equity funds that lock up capital for a decade.

Investors “are looking for returns -- that’s been happening from the dawn of time -- but now there are a number of similar strategies and it’s nice to see something a little different,” Victor Quiroga, founding partner at the private equity advisory firm Triago, said of investor interest in the approach. The relative newness of the strategy allows dealmakers like Dyal “to negotiate entry valuations where there are inefficiencies to be exploited.”

For private equity firms, selling a minority stake can generate cash for expansion plans or allow existing owners to cash in.

Vista, Silver Lake

Dyal has already used some of the $5.3 billion to buy parts of six managers: Vista Equity Partners, EnCap Investments, Silver Lake Management, HIG Capital, Starwood Capital Group and KPS Capital Partners. Some of the firms have recently seen their assets swell, such as Vista, which has gathered capital for middle-market equity and debt deals as well as for its latest buyout fund, which has a $10 billion cap. Silver Lake is preparing to market its fifth main fund, targeting $12.5 billion, people with knowledge of the process said last week.

Dyal’s previous funds hold stakes in sometimes-activists Jana Partners and Blue Harbour Group, private equity and credit manager Providence Equity Partners and others. Dyal’s first pool, which finished gathering $1.3 billion in 2012, was generating a 15 percent annualized return after fees as of March 2015, according to New Jersey Division of Investment, a backer of the fund.

The new fund won’t take positions in hedge fund managers, a trait that attracted liability-driven institutions such as pensions and insurers because private equity firms have longer lockup periods and more stable fee income, the person said. Investors in the fund include New York State Common Retirement Fund, New Jersey, State Teachers Retirement System of Ohio and several corporate pensions. Alaska Permanent Fund Corp. was one of the first backers, according to data compiled by Bloomberg.

While fee income from the underlying asset managers provides ongoing income for investors in Dyal’s funds, the firm may allow clients to exit by eventually selling shares in its portfolio to the public, the person said. Publicly traded Affiliated Managers Group Inc., which owns parts of asset managers that together manage about $730 billion, has a market value of $8.7 billion.

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