Here are two reasons why preferred equity – as offered by some specialist lenders, secondaries firms and banks – is becoming a more relevant part of the private equity financing tool kit:
GP-led processes to give LPs liquidity are becoming normalised. If you don’t want to go through the process of arranging a fund restructuring or a tender offer, why not arrange a preferred equity investment to release some liquidity to investors?
GPs are thinking about their own balance sheet strength. As shown by the latest fundraising venture from Dyal Capital Partners, not every GP wants to give up equity in their business to raise capital. This is a relatively nascent corner of this nascent market, but as preferred equity pioneer Augustin Duhamel says: his firm 17Capital has done a few GP-financing deals and sees it as “a developing segment” of the market.
This 26-minute podcast with the aforementioned Duhamel will bring you up to speed with how pref is being used.
Gen II and Quilvest: We are very used to seeing fund administrators gobbling up competitors to achieve valuable scale. We are less used to seeing them carve out chunks of their clients.
Email prepared by Toby Mitchenall.