Del Huse: Power to the People – Private Equity is becoming readily accessible
Following its rapid growth in the US, the UK market has seen its own rise of the “Independent Sponsor”, a private equity model where rather than having a committed fund, these firms raise their capital on a deal-by-deal basis from a syndicate of private investors.
In the UK market these syndicate investors tend to be private individuals, rather than institutions, which has enabled a whole new cohort of investors to participate in an asset class which is normally the reserve of large institutions. Private Equity and alternative assets can provide a compelling part of a private investment portfolio for the right type of investors.
When I started Roycian, its was always to enable private investors to participate directly into later stage private equity deals. Allowing investors to “pick and choose” which investments they get into felt compelling (rather than them being dragged along as part of a pooled fund), particularly as investors themselves feel differently on different days, about their own asset allocation, their liquidity and their appetite for a particular deal, its sector, size, deal type etc.
Most firms who operate this model, like ours, allow investors to register for free, to be able to see the deals as they come around, and then decide for themselves if they wish to participate. Firms set their own minimum investment levels, but the economics that the firms charge their investors varies significantly, so it’s worth understanding and comparing these before committing your capital.
We now see a lot of investors who have invested privately, but most commonly in crowd-funding of early stage, startup and growth capital deals, usually in SEIS and EIS structures. The challenge here of course is the high risk of failure and the length of time to an exit and a liquidity event. The private equity players like us are typically more interested in lower risk, profitable businesses. We invest ourselves in long established and profitable businesses in the UK, in later stage transactions such as management buyouts, or retirement sales. This is a lower risk alternative to the early stage investing, we are not unicorn hunting, but are seeking to generate for our investors a sensible return on capital with a mindset of “capital preservation first”.
The other real benefit of the Independent Sponsor model to me has always been that we are able to be what a private equity fund is not. Funds are bound by Limited Partnership Agreements which define the set of rules the Private Equity fund must live by, the sectors it can and cannot play in, its deal structures, investment sizes, investment holding periods and so on. This a key difference from an Independent Sponsor – for us there are no rules, there is total flexibility. Any sector, and deal type, any structure, any timeline, which has great advantages in the marketplace, seeking out those deals which the Funds can’t or won’t do, which in turn provides great opportunities for our investors. This also brings about great benefits for British Business to my mind – providing access to funds for a whole number of companies and management teams who would otherwise struggle to access private equity capital. Del Huse is Founder and CEO of deal-by-deal investor Roycian Ltd. www.roycian.com
