Kline Hill Partners recently announced it had held the final close on its debut fund on its $180 million hard-cap. Secondaries Investor caught up with founder Mike Bego about plans for deploying the fund, its take-private of London-listed PEI in October and how the firm is marking itself out in a crowded marketplace.
What type of deals are you going to be looking for in 2017?
We’re going to stick to our knitting and focus on smaller transactions in the secondaries market that are not realistic for bigger firms to do. We have a relatively small, $180 million fund, a very capable team, and we seek provide excellent value to sellers including a full “white glove” service. This service goal means working hard to provide best-in-class service when executing transactions. For example, we endeavour to provide offers within a couple of weeks, and turning around all legal documentation in 48 hours. The closing process can take up to a couple of quarters for other groups who would also put a lot more red ink into the legal documents. We just try to make it a more reasonable, easy and efficient process for sellers.
As for the types of deals, we are predominately focused on limited partnership interests in buyout funds, and growth equity and venture funds, and other funds such as a small amount of energy and real estate. The portfolio we are assembling is primarily in North America, but with a moderate European component and also open to Asia and other geographies.
How much of the fund have you invested so far?
We’ve committed approximately 25 percent of the fund so far across 25 transactions, in both older and younger vintages acquiring interests in approximately 150 funds. Right now we are working to shut down a fund by purchasing all of their assets – all the companies in the fund. [Our] entire fund will ultimately contain between 80 and 120 transactions.
How did the Private Equity Investors deal come about, and did Brexit play a factor in timing?
The company was talking to a number of groups and in each case these potential buyers wanted to purchase assets but not acquire the company – which was a problem for Private Equity Investors (a London-based publicly traded investment fund), because they really wanted to sell the entire company. We were the only ones who wanted to go the extra mile and purchase the entire company, which was a lot of extra work. With a normal secondaries deal, when you’re acquiring LP interests, you just transfer the passive interests. In this case we acquired an ongoing company with employees, office space, vendors, a website, the publicly traded complexities, and all the legal ramifications that come with it. It was a great experience and our team learned a lot but it was definitely a large investment of time.
[On Brexit and timing:] The shift in currencies appeared to make it a more doable transaction, certainly. The PEI assets were in sterling, and while they did not move as much as the exchange rate did, they did move. We ended up with an approximate 25 percent discount on the net asset value of the company.
What did you learn and would you do this type of deal again?
Absolutely, especially now that we have the experience and framework from this complex take-private transaction, we would do a deal like this again. In terms of what we learned, one thing that the process would have benefited from might have been a more detailed road map with regards to the international tax processes, to facilitate the tax planning a little better. It was laborious to sort through and time consuming. It wouldn’t have been very difficult to do and would not have changed the outcome, but would have made the process smoother.
Bego launched Kline Hill in October 2015 and prior to that spent almost 10 years at New York-based Willowridge Partners where he was a partner. Kline Hill focuses on providing liquidity to investors who hold smaller sized limited partnership interests in buyout, venture capital, and other private equity funds, and also purchases direct investments.
– Nathan Williams contributed to this article.