? The joint venture is designed to assist new managers hoping to enter the private market quickly
? Archean will start with a single-manager format, but could expand to a multi-manager platform
As new managers rush to enter the private market, wealth management companies are coming up with innovative ways to provide individual managers with large, stable sources of funding while securing a rapid first close. To that end, Veritable LP entered into a joint venture agreement with Moelis Asset Management LP establishing Archean Capital Partners, a private market investment platform aimed at providing emerging portfolio managers with capital and infrastructure to start their own funds. Archean has since raised $100 million for a single manager in a period of less than a month during the initial round of fundraising.
In a conversation with S&P Global Market Intelligence, Veritable's founder and CEO, Michael Stolper; Moelis Asset Manager Managing Director Christopher Ryan; and Veritable Head of Global Private Market Investing Rob Lazaroff discussed the importance of designing a model that allows managers to enter the market quickly, while providing them with immediate access to infrastructure, legal, IT and communication platforms. The following is an edited transcript of the interview.
S&P Global Market Intelligence: How encouraged are you with the long-term prospects of Archean Capital Partners after completing the initial round of fundraising?
Michael Stolper: We're very encouraged by the response to the first fund. We raised the $100 million commitment to our first manager in less than 30 days. We feel like that is a very good result. The Archean JV and the first fund manager investment really has been 18 months in the making; you're seeing it at the end of that 18-month process.
We knew at the outset that the process and the pipeline would take some time to evolve. We didn't want to feel any pressure to make the first investment until we were ready and that's the reason we chose a single-manager format, which we are referring to as the special purpose vehicle, for at least the first fund. We may end up doing a multi-manager platform at a later date.
Christopher Ryan: We see a substantial market opportunity for this business with respect to private equity executives from an entrepreneurial bent that want to try to build their own firm, as well as investors that have interesting, early-stage managers, but have not been compensated in a way they necessarily think is fair for coming in early to a fund. What we're trying to do is marry those two market conditions with respect to this business. We think that it's a set of circumstances that will be around for awhile.
Under the current backdrop, what are some of the advantages of completing a first close for participating managers as quickly as possible?
Stolper: Our model is definitely designed to get managers up and running and to provide them with a credible springboard so that they can do broader fundraising. Speed is definitely important and relevant to new managers. They most likely have a valuable pipeline of investment ideas; they don't want to sit on the sidelines unnecessarily. Each new manager and strategy we end up investing in will have unique characteristics and demands, but Veritable and Moelis have committed a considerable amount of resources to the success of our JV, and we recognize that doing this fluidly and efficiently and not taking up time is crucial to the managers.
Archean identified six different types of strategies for managers with which it hopes to partner. How critical is it to partner with managers across a broad range of strategies in order to diversify the fund?
Rob Lazaroff: For our strategy it is really important for us to cast a broad net across various asset classes, investment strategies and regions. It's important because we are trying to marry investment opportunities with best-in-class managers that are managing those funds. In order to do that, we do need to cast a wide net across those strategies.
What are some of the industry trends you have seen lately in how some of these funds have performed?
Lazaroff: I think some of the broad industry trends, whether it be pricing in the market, leveraged multiples and cap rates, those sort of things, are less important to us because we can be patient and wait for the right opportunity to come our way. We think within some of those broader trends there are always opportunities to find areas of the market that are more niche, areas of the market that are more capital-constrained and maybe less susceptible to having many players compete and drive prices up, and also areas of the market that might be out of favor.
PitchBook noted in its annual U.S. private equity breakdown that buyout activity has waned in recent months due to heightened concerns related to global trade. In the event that trade activity may slow, what impact could it have on your strategy in partnering with buyout-focused managers?
Stolper: We are fundamentally agnostic, free-ranging and we're willing to go wherever the best opportunities present themselves. We intend to be in this marketplace for an extensive period of time and so we'll be sampling all kinds of environments with a variety of different managers. But obviously we will be thinking of those things, including the current political and business environment and trade environment as we evaluate new ideas.
What type of returns does Archean expect to provide to investors?
Stolper: I think it's important to realize that we are looking at potential emerging managers across a variety of risk-return profiles. I don't think a generalization would work here. Every manager and every niche in which they operate will have its own characteristics with respect to return and risk, as will the structure of our transactions. I think we're open-minded about it.