The former head of AlpInvest Partners‘ fund of firms strategy has partnered with Jefferies Financial Group to launch a platform taking minority stakes in alternative asset managers.
Sean Gallary and Craig Schortzmann, a former managing director at Blackstone Alternative Asset Management, have launched Stonyrock Partners, according to a statement. The firm has teamed up with Leucadia Asset Management, part of Jefferies, to raise a permanent capital vehicle dedicated to the strategy.
Gallary left AlpInvest’s partnership unit in October after 18 months at the firm, as Secondaries Investor reported.
Leucadia declined to comment beyond the statement. Stonyrock was not available for comment.
The partnership will target alternative asset managers around the globe that invest in the mid-market across a multitude of asset classes, including private credit, private equity, real estate and infrastructure.
“There is a growing demand for capital within the middle market as firms are looking to address a range of strategic initiatives – most capital in the market today is focused on the large-cap segment, so Stonyrock is looking to address that demand,” a source familiar with the platform said.
The permanent capital structure Leucadia and Stonyrock are looking to raise is critical to success in the space, as the deals aren’t structured to allow for a quick exit; the transactions are meant to be long-term arrangements.
“All of the major players in this space have investments structured to be permanent capital vehicles,” a fund of firms investment professional recently explained to sister title Private Debt Investor. “The best way to align yourself with a manager is to be their permanent partner. By the deal’s terms, it doesn’t have any end date; there’s no date by which your interest goes away.”
Schortzmann joined Blackstone in 2013 after Credit Suisse ended the product that took minority stakes in private market managers, according to a Wall Street Journal report at the time.
Fund of firms vehicles have been receiving more attention recently.
“Demand is building from institutional investors,” Jeff Hammer, a Houlihan Lokey managing director and co-head of the firm’s illiquid financial assets practice, said last year. “The predictability of the income stream from funds with long-term, locked-up money presents an attractive investment opportunity.”
GPs are certainly responding to that demand. Managers that have launched fund of firms businesses include Goodhart Partners and Investcorp. Goodhart debuted Volunteer Park Capital in September and is seeking $200 million for the strategy, while Investcorp hired fund of firms veteran Anthony Maniscalco in November.
The largest players – Blackstone, Dyal Capital Partners and Goldman Sachs’ Petershill programme – have all raised billions of dollars for the strategy. Blackstone raised $3.38 billion for its first fund and is reportedly seeking more than $3 billion for a successor vehicle. Meanwhile, Dyal Capital Partners has raised more than $7 billion and Petershill has raised $2.5 billion for their most recent respective funds.
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