Benchmarking human capital; part three of GP-led guide

AlphaCalc: Yesterday we published this exclusive on consulting firm 29Bison’s planned launch of AlphaCalc, an AI-based platform that aims to give fund managers and mid-market company executives the ability to quickly analyze a given company’s performance on both financial and human capital metrics, benchmarked against relevant peer groups. Quickly analyzing financial metrics against a bespoke set of peers is obviously useful; 29Bison’s proposition of measuring and benchmarking how staff, HR policies, compliance procedures and more contribute to or potentially harm performance seems to me a new, and potentially very interesting one. The tool also provides the ability to run scenario analyses on various metrics, which might be an aide to firms as they manage their portfolios through this crisis.

Guide to GP liquidity solutions: We present part three of the upcoming Proskauer guide to GP-led liquidity solutions: continuation vehicles and strip sales. Click the following links for the guides to GP-led fund restructurings and tender offers.

Solution:

Continuation vehicles & strip sales

Description:

A continuation vehicle strategy typically involves the formation of an SPV managed by the GP or its affiliates. The SPV is funded by new investors and/or existing LPs, and will purchase one or more investments from the fund.  These transactions can take the form of the sale of a single portfolio company, a set of particular portfolio companies or a “strip sale” (i.e., a sale of a portion of some or all fund investments).

The terms of the SPV generally include most of the typical terms found in a fund agreement to the extent applicable after the expiration of the investment period.  In these structures, the GP generally receives carried interest with performance-based hurdles.

Scenarios for use:

1) Similar scenarios as those applicable to a GP-led fund restructuring, but allows for a more tailored approach of isolating and targeting one or more specific portfolio companies that would benefit from a longer hold and/or additional capital support.

2) SPV terms can be tailored to fit the characteristics of the particular portfolio (e.g., the time horizon for exits, expected capital needs, incentive compensation, and any appropriate milestones related to the deal).

3) General structure can also be used for spinouts to a subset of a GP team that wants to form a new sponsor, sales to a third party manager, cooperative joint venture arrangements with another manager, stapled primary commitments to another vehicle, or other business objectives

Specific considerations:

1) Generally similar considerations to a GP-led fund restructuring, particularly with respect to valuations, GP conflicts and internal GP issues.

2) The continuing health of both the spun-out and “legacy” portfolios will need to be carefully considered and discussed, and the GP should ensure full transparency with LPs and new investors.

3) The required analysis, structuring and negotiations may be costlier relative to the size of the deal as compared to a full-fund restructuring.

Email prepared by Graham Bippart