Raising a traditional private equity fund has become more difficult since 2008. This, coupled with investment restraints and increased reporting requirements has led an increasing number of investment professionals to complete deals on a deal-by-deal basis as independent sponsors.
“Some firms have wound down. All of those professionals in this very mature market have a ton of expertise that is now migrating into the family offices or going independent. It used to be a family office would only be able to invest with a fund or a fund of funds, but that’s not the case anymore,” says Howard Romanow, a chief financial officer with Island Management, a family office that invests both directly into deals and into private equity firms in a video interview with Mergers & Acquisitions. “Many are tired of paying the fees charged by private equity firms for the returns they are providing and the incremental risk many are taking to try to generate carry. If you can do it yourself with your own team, you can downsize the risk and downsize the cost structure.”
According to John Fruehwirth, a managing director with independent sponsor Rotunda Capital, independent sponsors used to be backed by small family offices and high net worth individuals, but he is now seeing regional banks, money center banks and funds of funds looking to complete deals on a one-off basis. Click here to watch our full video interview with Fruehwirth.
In addition to having a cheaper cost structure, many independent sponsors also offer industry knowledge above and beyond what a private equity firm brings to the table, as many professionals within independent sponsor firms are ex C-suite executives looking to make deals in industries where they have experience.