A small cadre of money managers is amassing billions of dollars to take stakes in private equity firms, a trend that raises the question of how they plan to exit those investments.
Managers such as Neuberger Berman Group LLC have been taking minority interests in alternative investment managers since around 2012. Most started with hedge fund managers but now are moving on to private equity general partnerships with their most recent offerings, which are often closed-end funds. The strategy is expected to be a way for investors to get long-time access to high-performing managers while paying lower fees.
Dyal Capital Partners is Neuberger Berman's business unit dedicated to take minority interests in managers. In February, Dyal closed an oversubscribed $5.3 billion fund, Dyal Capital Partners III. Dyal has close to $9 billion in assets under management.
In December, Dyal collected $250 million capital for its next fund, Dyal Capital Partners IV, from the Minnesota State Board of Investment, a returning investor that oversees a total of $89.5 billion in state public pension and other assets. Officials previously had committed $175 million to Dyal's third fund.
Dyal's strategy is not unique. Blackstone Group LP's Blackstone Strategic Capital Holdings Fund and Goldman Sachs Group Inc.'s Petershill line of funds also take minority stakes in private equity, hedge funds and other alternative investment firms.
Managers are targeting double-digit returns. Petershill Private Equity has a 20% internal rate of return target with two times return on invested capital, according to minutes of the March 30 New Mexico Public Employees Retirement Association, Santa Fe. (New Mexico PERA committed up to $150 million to the latest Petershill fund.)