Christiaan de Lint, Managing Partner, Headway Capital Partners

While many private markets firms scramble to build a secondaries capability, London-headquartered Headway Capital Partners has moved away from its focus on the sub-asset class.

Headway has raised €627 million for its latest flagship Headway Investment Partners V, surpassing its €500 million target, according to a statement.

Across its first two funds, Headway focused on more complex secondaries and secondary-direct deals before moving towards the growing independent sponsors market. The firm then began to pivot its strategy away from secondaries with its third fund, managing partner Christiaan de Lint told affiliate title Private Equity International. Its focus on deal-by-deal transactions became apparent with €372 million Fund IV. More than half of transactions completed by that vehicle came from independent sponsors, he added.

Once again, Fund V will seek to back private equity managers on a deal-by-deal basis – a space where a record $31 billion was deployed last year, according to Triago data.

“Why independent sponsors? It’s a growing market,” de Lint said. “There’s a lack of institutional capital in that space.”

With its deal-by-deal focus, Fund V will also have room to invest in co-investment opportunities, GP-led transactions and fund-based managers that may not have a current active fund, for example, de Lint said.

The broader secondaries market laid the framework for independent sponsor deals 25 years ago when it backed fundless managers via a direct transaction to manage a portfolio of assets, de Lint explained.

“An independent sponsor deal today [was] a single asset secondary direct deal at [that] time”, he added. The firm has always had a flexible mandate to back secondaries transactions “that other people don’t want to do, that are too complex, too different”.

With its first funds, the firm would try to fit independent sponsor transactions into its secondary direct pocket. “At some stage, we said, ‘well, let’s call it what it is. This is not a secondary direct. This is really a fundless sponsor, an independent sponsor, a deal-by-deal strategy.’”

Managers operating within the independent sponsor market “need to basically be able to outperform the co-investment market with these type of deals”, de Lint said.

Headway seeks out independent sponsors with a proven track record and strong assets, as well as a “compelling sourcing story”, which includes factors such as the manager’s relationship with a seller or management team, sector expertise or specific knowledge of the company, he added. This enables that manager to buy attractive assets, typically below market price.

All eyes on secondaries

The focus on the secondaries market by wider private markets participants is a function of market timing, de Lint said. He believes the demand for GP-led secondaries could slow down when the M&A market picks up again.

“We realised that we’re unique in our positioning in the independent sponsor market and that we clearly have a first mover advantage,” he explained. “You cannot go into the independent sponsor market and just try to do one or two [deals] here and there. You need to see the flow. It’s a [large market] with many transactions [and you need] be able to identify the most compelling opportunities.”

While family offices are familiar with the independent sponsor market, institutional investors are less exposed in this area, given they see less fundless manager dealflow. Therefore, it is harder for these LPs to gain access to this area of dealmaking.

Institutional investor demand for this strategy is “going to change”, de Lint added.

“I am pretty convinced in five years now, there will be more Headway-like firms out there.”