CapDyn gains Silicon Valley foothold with HRJ take-over

Swiss alternatives firm Capital Dynamics will augment its fund of funds platform by assuming management of HRJ’s $2bn in assets. The US fund of funds was reportedly burned by its over-commitment strategy last year, causing it to breach debt covenants and seek secondary sales.

Capital Dynamics has said it will significantly expand its fund of funds platform by absorbing $2.2 billion in assets and certain “key” professionals from struggling HRJ Capital. It is the second such deal in two days, with Bridgepoint revealing yesterday it would assume the assets and team linked to Hermes’ direct private equity business.

US fund of funds HRJ reportedly ran into liquidity problems last year as an over-commitment strategy developed during the boom cycle left it without the funds needed to meet certain capital calls, as well as to repay Silicon Valley Bank (SVB) roughly $70 million for a warehouse facility. HRJ reportedly used such loans to buy fund interests and front-load its portfolio ahead of securing commitments for its vehicles – a practice used by funds of funds in recent years to win LP commitments, but one which can cause problems when fundraising becomes more difficult.

Silicon Valley: Capital
Dynamics' next haunt

HRJ was founded in 1999 by former NFL football stars and previously called Champion Ventures. Over the years, it expanded its focus on venture capital fund interests to also encompass private equity, special situations/distressed investment and real estate funds. It most recently closed a $195 million special situations-focused fund of funds last year.

In December, numerous media reports suggested SVB was considering taking control of HRJ funds, though no deal was struck and Probitas Partners was subsequently retained to shop HRJ-owned fund interests on the secondary market. Speculation at the time was that proceeds from any sale would repay SVB. It is unclear whether any secondaries sales took place. Probitas and HRJ could not immediately be reached for comment.

Capital Dynamics said in a statement it expects the deal to close in the second quarter, pending approval from HRJ’s LPs. Definitive agreements between HRJ, Capital Dynamics and SVB also must be executed, it said.

The Swiss firm said the deal notably gives it access to top-tier VC firms and establishes its presence in the real estate segment of the market. It also gains a Silicon Valley office.

Headquartered in Zug, Capital Dynamics manages more than $20 billion in client capital across business lines that include fund of funds, co-investments, separate accounts and structured private equity products. It has offices in New York, San Francisco, London, Birmingham, Hong Kong and Munich.