Arctos Partners is aiming to apply its expertise in partnering with sports teams and franchises to the alternative asset management industry with the launch of a strategy that will address a wide range of GPs’ financing needs.
The Dallas-headquartered firm has assembled a team of individuals with experience in the secondaries and GP stakes markets to form Arctos Keystone. The group, which is part of Arctos, will target deals between $100 million and $300 million and could invest in deals north of $1 billion. It will predominantly focus on private equity managers.
“We think the alternative asset management industry has seen two decades of unconstrained growth, but that is rapidly changing,” John Stott, a former partner at secondaries firm Landmark Partners who has joined Keystone as a partner, told affiliate title Private Equity International. Stott added that many GPs haven’t orientated to this new market environment and are still basing their business plans around unsustainable fund size increases, unsustainable product growth and unsustainable fundraising timelines.
The firm has also hired Charles Tingue, another former Landmark partner, who most recently was a senior adviser to London buyout firm TDR Capital.
Secondaries legal veteran Michael Belsley, who PEI reported in March had joined Arctos from Kirkland & Ellis, serves a dual role as partner and chief legal officer of Arctos. Joseph Corcoran, a managing director who joined the firm in March last year from GP stakes firm Stonyrock Partners, rounds out Keystone’s four-person leadership team.
Founder Ian Charles and partner Joseph Nasr will also support the Keystone team.
Keystone aims to provide bespoke offerings to alternatives managers at the management company, fund and asset level, according to Stott, Tingue and Belsley. The strategy takes its name from the concept of a ‘keystone species’ – an animal or plant that helps its ecosystem stay together and/or helps it thrive. Examples include sharks, jaguars and beavers.
“Our job is to listen to the sponsors we’re interacting with and have a very flexible mandate,” Tingue said. This could include if a GP wants to launch a new product, invest more in a flagship product or is restricted from maximising its plan or strategy at the fund level and wants to invest more, he added.
“We have a track record of hearing those problems or goals, and then coming up with a very tailored solution to help that sponsor achieve the goal, in a way that is more efficient or specific than some of those more commoditised approaches,” Tingue said. In most cases, the existing strategies aren’t able to solve or unlock these opportunities, he added.
Specific examples of what Keystone will provide include bespoke management company equity transactions such as stake sales, continuation funds that are tailored to specific goals and asset or fund-level recapitalisations, he said.
While the strategy is highly flexible across the capital structure, it is not seeking debt-like returns, Belsley added.
The launch comes at a time when fund sponsors are increasingly using tools to address issues such as management company liquidity, succession planning, strategy launches and liquidity issues within an LP base or at the asset level. The number of minority GP stakes sales involving alternative asset managers has roughly tripled over the past decade, with 42 transactions taking place last year across private equity, growth, venture capital, private credit, infrastructure and natural resources, real estate, and hedge fund managers, according to research by Campbell Lutyens. Such sales reached a high of 51 in 2021, up from 15 in 2012.
Managers are also using secondaries technology via continuation funds to hold onto assets and offer liquidity to LPs, with such deals worth around $44.2 billion last year, according to data from Jefferies. Some predict the NAV loan market – via which sponsors can borrow against assets held in a fund to return cash to LPs or make further investments, among others purposes – could grow to $700 billion by the end of the decade.
Arctos hopes to grow its 45-person team to as much as 55 over the next year, according to Belsley, who spent more than two decades at Kirkland and was a senior partner there.
Roughly half of Arctos’ staff focus on either its Sports or Keystone strategies, with the remainder supporting both, Belsley added.
US regulatory filings show Arctos Sports Partners registered a fund named Arctos Keystone Partners Fund I in June. It is unclear how much the fund is targeting and the firm declined to comment on fundraising.
The Keystone launch comes two months after Arctos opened a London office and relocated a managing director there to lead the outpost, PEI reported at the time. The Keystone strategy has staff working both in the US and London, according to Belsley.
Arctos was founded in 2020 by Charles, a veteran of Landmark, alongside David O’Connor, who was the chief executive of Madison Square Garden. In 2021, its debut fund was the largest first-time private equity fund ever raised at close to $2.9 billion, beating its $1.8 billion target, according to PEI data.