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- 1.7 and 20
1.7 and 20
Management fees not what they used to be
PRESENTED BY 10 EAST
Transacted
October 25, 2024
Happy Friday. Here’s what we’ve got today…
A look at the latest data on management fee compression
Plus, Nautic raises its 11th flagship fund
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1.7 and 20:
Private equity management fees have hit a 20-year low, according to the latest private capital terms report from Preqin. Buyout funds closed this year or in the market as of June agreed to average management fees of 1.74 percent of committed capital, down from 1.85 percent in 2023 and continuing their steady retreat from the traditional "2 and 20" model.
Fewer exits have meant reduced distributions to limited partners, in turn leading to less capital availability for new fund commitments.
Speaking with the FT, Greg Durst, senior managing director at the Institutional Limited Partners Association, says the industry is readjusting to a shift in negotiating leverage. "Because of that pressure on fundraising, [managers] are going to make concessions on fees and terms," notes Durst, adding that LPs are being "very slow and judicious about how they're going to be making new commitments."
It's a familiar story at this point in the cycle, but it may not be the full picture.
This month's data readout shows that venture capital management fees have actually seen a slight uptick, from 2 percent to 2.05 percent. That’s despite relatively worse distributions for early-stage investors: less than 10 percent of 2021 vintage funds have had any DPI after 3 years, according to Carta data.
Another factor impacting later-stage fees might be the more micro-level dynamics at play between LPs and certain fund managers.
Management fees by fund size, in millions, data per Preqin Pro
Fee compression has been varied across different segments of the market — larger managers with diversified platforms have taken lead in fee reduction through multi-strategy fee arrangements that encourage more concentrated relationships with investors across their various offerings.
Durst describes a sort of volume discount: "If you're in one, you're in for a 2 percent management fee. If you do three, you're in for 1.75 [percent]."
Smaller firms and emerging managers have had a harder time. Lower operating leverage can mean less room to cede ground on management fees, leading to worse terms than larger peers.
But scale also matters for limited partners. On the other side of the table, an outsize share of fee compression economics tends to accrue to the largest investors. LPs issuing checks in the eight-to-nine-figure range will naturally hold more sway in negotiations than smaller investors.
On the bright side for GPs, performance fees haven't budged. After hurdles, managers' share of profits is still close to its 19.5 percent average over the last two decades.
DEALS, DEALS, DEALS
• JBS and Sigma Alimentos are competing to acquire Oscar Mayer, the Chicago-based meat and cold cuts producer owned by Kraft Heinz, which could fetch around $3 billion.
• Quikrete Holdings offered to acquire Summit Materials (NYSE: SUM), a listed provider of construction materials trading at a market value of nearly $8 billion.
• KKR agreed to acquire a 25 percent stake in Enilive, a biorefining and fuel station operator, for €2.94 billion from Eni (NYSE: E).
• Allianz SE is weighing options for its Allianz Global Investors asset management unit, including a potential merger or partial sale that could value the business at more than €4 billion, per Reuters.
• Thoma Bravo-owned Bottomline Technologies is exploring the sale of its legal spend management unit, which could fetch around $750 million.
• Bridgepoint-owned Cherry AB is exploring the possible sale of its ComeOn sports-betting unit, which could be worth around €500 million.
• Presidio Investors acquired a majority stake in The Only Agency, a talent agency representing celebrity fashion stylists and makeup artists.
• One Equity Partners acquired York Telecom Corporation, a Wall, NJ-based IT services provider.
• Snow Peak Capital acquired TurbineAero, a Phoenix-based provider of maintenance and repair services for aircraft auxiliary power units, from The Gores Group.
• TKO Group agreed to acquire Professional Bull Riders, IMG, and On Location from Endeavor for $3.25 billion.
• Shell (NYSE: SHEL) agreed to acquire RISEC Holdings, a gas turbine power plant operator in Rhode Island, from Carlyle.
• Levine Leichtman Capital Partners agreed to acquire Schülerhilfe, a German tutoring services provider, from Oakley Capital.
• Cold Chain Technologies, a portfolio company of Aurora Capital Partners, acquired Tower Cold Chain, a UK-based manufacturer of reusable temperature-controlled containers for pharmaceuticals.
• Ledger Run, backed by Blue Star Innovation Partners, acquired Assentia, a Raleigh-based clinical trial contract negotiation and investigator payments provider.
• Latus Group, a NorthEdge portfolio company, acquired OH Services, a provider of medical assessments for oil, gas, and maritime clients.
• A consortium led by Doug Ostrover and Marc Lipschultz, Blue Owl Capital's co-CEOs, acquired a majority stake in the NHL’s Tampa Bay Lightning from Jeff Vinik and Arctos Partners at a $1.8 billion valuation.
• Blackstone Credit and Insurance invested $288 million in Pine Gate Renewables, a North Carolina-based solar and energy storage developer.
• Lovell Minnick Partners invested in Cohen & Company, a Cleveland-based accounting, tax and advisory firm.
• Sixth Street Partners invested $500 million in Merchant Investment Management, a serial RIA minority investor.
• Blue Sage Capital invested in MHW, an alcohol compliance and logistics services provider.
• Vagaro, backed by FTV Capital, agreed to acquire Schedulicity, an appointment scheduling software for salons and spas.
• Parkview Dental Partners, backed by Cathay Capital, acquired Breezy Dental, a Tampa, Florida-based dental practice.
• Keurig Dr Pepper (NYSE: KDP) agreed to acquire an initial 60 percent stake in Ghost, an energy drink brand, for $990 million from Anheuser-Busch InBev, with the remaining 40 percent to be acquired in 2028.
VENTURE & EARLY-STAGE
Tech, Vertical SaaS, & Misc. Enterprise
• Simbe, a developer of autonomous retail inventory robots, raised $50 million in Series C funding led by Goldman Sachs Alternatives, with participation from Eclipse and Valo Ventures.
• Fixify, an AI-powered IT help desk solution, raised $25 million in Series A funding co-led by Costanoa Ventures, Decibel Partners, and Paladin Capital Group, with participation from Scale Venture Partners.
• TollBit, a marketplace for AI companies to pay publishers for content usage, raised $24 million in Series A funding led by Lightspeed Venture Partners, with participation from Section 32, Sunflower Capital, AIX Ventures, Lerer Hippeau, Checker Media, Operator Collective, Liquid 2, and BDMI.
• Genie AI, an AI-powered contract drafting platform, raised $17.8 million in Series A funding led by Google Ventures, with participation from Khosla Ventures.
• Sensei, a Portuguese autonomous retail tech startup, raised €15 million in Series A funding led by BlueCrow Capital, with participation from Lince Capital, Explorer Investments, Kamay Ventures, Metro AG, and Techstars Ventures.
• Attention, an AI platform that extracts sales insights from customer conversations, raised $14 million in Series A funding led by Alven, with participation from Eniac, 645 Ventures, Aglae, Frst, and Liquid2.
Healthcare
• Alpha-9 Oncology, a radiopharmaceutical startup, raised $175 million in Series C funding co-led by Lightspeed Venture Partners and Ascenta Capital, with participation from General Catalyst, a16z Bio + Health, RA Capital Management, Janus Henderson Investors, Delos Capital, Digitalis Ventures, Lumira Ventures, Frazier Life Sciences, Longitude Capital, Nextech Invest, BVF Partners, and Samsara BioCapital.
• Be Biopharma, a developer of engineered B cell medicines, raised $82 million in new funding from ARCH Venture Partners, Atlas Venture, RA Capital Management, Alta Partners, Longwood Fund, Bristol Myers Squibb, and Takeda Ventures.
• Infinitus Systems, an automation platform for manual healthcare phone calls, raised $51.5 million in Series C funding led by Andreessen Horowitz, with participation from Kleiner Perkins, Coatue, and GV.
• Dyania Health, an automated medical record analysis platform for clinical trials, raised $10 million in Series A funding co-led by HealthX Ventures, Tech Square Ventures, and Cleveland Clinic Ventures.
FUNDRAISING
• General Catalyst raised $8 billion across multiple strategies, including $4.5 billion for core venture funds, $1.5 billion for company creation, and $2 billion for separately managed accounts focused on AI, defense, climate, healthcare, and fintech.
• Nautic Partners raised $4.5 billion for its eleventh flagship fund focused on middle-market healthcare, industrials, and services.
• Chemistry, launched by former partners from Index Ventures, Andreessen Horowitz, and Bessemer Venture Partners, raised $350 million for its debut fund focused on early-stage fintech, infrastructure, and developer tools.
PARTNERSHIPS
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