Former Landmark Partners veteran Scott Conners this week teamed up with some experienced private equity execs to launch FlowStone Partners. Its first product, the FlowStone Opportunity Fund, provides high-net-worth individuals access to private equity investments.
The firm is an affiliate of Cresset Capital Management, which Conners and two other former Landmark execs had joined last year to launch a similar product.
We caught up with Conners to find out more about his venture.
FlowStone has lofty ambitions
The fund is structured under the revised ’40 Act as a closed-end, non-exchange-listed vehicle and will make investments in primary funds, secondaries and co-investments alongside GPs. It launched with $30 million in capital and is hoping to grow to $50 million by year-end, Conners said. Its 10-year goal is to become a $2.5 billion fund.
The majority of the vehicle will be invested in secondaries and will benchmark itself against S&P 500 and Russell 2000 indices. It will aim to beat public market returns of high-net-worth individuals’ portfolios by at least 5 percentage points.
Pricing arbitrage is the name of the game
The fund will take advantage of the long time between the pricing date and the closing date in deals and between valuation gains and liquidity that occurs in a fund’s portfolio in that interim period. It will focus on the smaller end of the market where the pricing is more attractive: think mid-market and lower-mid market funds, as well as the smaller deals from the larger funds.
Investors can get quarterly liquidity
The fund will have an evergreen structure with quarterly investment and redemption windows. Just 5 percent of the fund’s NAV can be tendered in any quarter. As secondaries tend to have shorter investment periods than primary investments, a diversified portfolio of secondaries should yield between 10 percent to 15 percent in cash annually, Conners said.
FlowStone is starting with RIAs
The fund is being marketed to registered investment advisors who manage portfolios and investments on behalf of the high-net-worth individuals. Jason Neal, who spent six-and-a-half years at Landmark, is leading investor relations.
It has already closed one investment
FlowStone has invested in a primary fund that provides liquidity for holders of equity and equity options in private unicorn businesses. A big part of the compensation for investors is equity or equity options in those businesses and many investors want to crystallise value before those companies go public or are sold, Conners said. “We have invested in what we think is the best fund in that space,” he added.
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