Rich Returns
Those acquiring stakes have reaped rich returns thus far. Dyal’s $5.3 billion third fund has posted annualized returns of 26% as of June 30, according to a report by the Minnesota State Board of Investment, which committed $175 million in 2016. The deals offer prized access to the economics of buyout firms at a time when private equity is steadily infiltrating just about every corner of the economy. From 24 Hour Fitness to Cinnabon to Vivid Seats, more than 20 million people are employed by the 15,000 companies backed by private equity.
“I cannot replace this kind of cash flow, predictability and downside protection,” said Christopher Zook, chairman and chief investment officer of CAZ Investments who has invested in some of Dyal’s funds. “I’ve told my wife and son that if I get hit by a bus they’re never allowed to sell this investment.”
Such optimism is well-founded. Vista’s assets have grown by more than a third to $56 billion since the second Dyal investment, making it one of the world’s biggest buyout firms. Miami-based H.I.G. Capital has added about $10 billion of assets since Dyal first invested in 2016.
Still, the market may have peaked. There’s a finite supply of top-tier firms even as the money chasing stakes in these entities grows with recent entrants including Stonyrock Partners, backed by an arm of Jefferies Financial Group Inc., and Investcorp.
“The first generation of these funds have done nicely,” said Graham Elton, Chairman of Bain’s EMEA private equity business. “They were bought well during a good period for private equity. At the time, value drivers were pointing in the right direction, but now they may no longer be doing so.”
For now, it’s giving the latest generation of private equity owners the resources that are traditionally the preserve of more liquid fortunes. That was on dramatic display earlier this year when Smith stunned students at Morehouse College’s graduation ceremony with his promise to pay off the student loans of every member of the Class of 2019, a $34 million act of largesse.
“On behalf of the eight generations of my family that have been in this country, we’re gonna put a little fuel in your bus,” he told the graduates.)
--With assistance from Kiel Porter.
This article was provided by Bloomberg News.