Much has changed with the financial markets since 2010, capital raising
efforts have been hampered by a lack of liquidity and market turmoil,
yet private equity investments are flourishing and it appears that single-investor
products are leading the charge. According to Bain & Co.’s Private
Equity Report for 2015, single-investor vehicles have raised over $128
billion. This amount far exceeds forecasts and may be more than the total
capital raised from private pooled-fund ventures.
Single-Investor Products (SIPs) are transactions that bring together a
single asset manager and individual investor for a negotiated product
closing. The transactions are seen to be advantageous; especially by asset
managers seeking stronger relationships with individual investors and
for the development of a broader range of business investment opportunities.
Growth of SIPs
During the economic crisis of 2008, fundraising based on commingled capital
endured a variety of issues, including a lack of liquidity, and redemptions
from individual investors. However, not all limited partners experienced
liquidity problems, and this, in turn, fueled the growth of SIPs to fill
the gap in raising capital during that critical period. The positive results
gleaned from these activities help enlighten the investment community
to the power of SIPs, as well as the protections they offer in broadening
and stabilizing fundraising efforts.
During the period of financial recovery, SIPs thrived and had assumed a
more prominent role in the eyes of many asset managers and investors.
Investment strategies may vary, but they all rely on one thing –
liquidity. Very simply put, capital is king. Currently, many more managers
are recognizing the power of SIPs and utilizing them to produce more innovative
The private funds market has made a hard-fought comeback since 2008, and
SIPs are leading the way in an effort to provide even more access to private
capital. The new role SIPs are playing in capital markets is reflective
of the type of leverage asset managers have with this investment strategy.
In attempting to bridge the gap between large-group pooled capital raises,
such as sovereign wealth and pension funds, managers are leveraging the
use of SIPs, stemming from both smaller and larger individual investors.
Another advantage SIPs have over pooled funds is the disclosure and reporting
requirements mandated by the SEC. Both managers and investors like the
fact that they can engage with SIPs on a project, without the level of
disclosures that would be required of larger pooled equity funds. This
feature allows managers the ability to gauge the interest of a single
investor before moving forward with a proposed capital investment.
As the use of SIPs grow, asset managers are now learning to create a beneficial
balance between commingled pooled funds and SIPs in the same managed portfolio.
Some investors participate as both a SIP and as a partner in pooled fund
investment programs. This provides a wealth of options for managers to
acquire and sustain investment interest from a core contingent of SIPs,
while still offering the possibility of a pooled capital raise. The benefit
of having both options available to them, allows the asset manager to
raise capital for small and large offerings, providing excellent coverage
to their clients in the process.
SIPs Provide More Investment Opportunity
SIPs allow managers and investors to come together in a large variety of
negotiations independent of pooled offerings. These unique opportunities
offer single investors flexible terms, direct investing benefit, and more
interaction with managers than they would otherwise see with group offerings.
Here are some of the unique benefits single investor products offer:
Direct deals offer investors a way to more actively participate in the
investment model, with hands-on interaction with the asset manager and
product. It also allows the manager to garner more SIP support through
a partnership approach that customizes an investor’s control over
the fund. The manager can tailor the fund to match the investor’s
level of participation, and as such, create different investment strategies
to suit his portfolio of investors.
Better Terms for Larger Commitments
SIPs allow for managers to accept a larger investment commitment on the
part of single investors than they would otherwise see with pooled funds.
In turn, the investor can require that terms be skewed in his favor while
creating priority access to the asset managers. This setup is beneficial
to managers as they have more flexibility in reporting and can structure
SIPs for products acceptable to their core group of investors.
More Transparent Interaction
The bigger investors clearly have an advantage with regards to SIP offerings.
They can have a more direct relationship with fund managers to identify
and participate in products that are in line with their investment strategies.
Being able to participate in a SIP, these larger investors are in a better
position to find offerings with better terms and more direct participation
than would otherwise be available to them with other pooled opportunities.
Today, SIPs have provided a critical component for private equity funds.
Their unique structure is allowing established managers to develop a sound
relationship with their largest investors while attracting better and
more financially viable investment opportunities. As investment markets
continue to evolve, SIPs will play more significant role in providing
investors and managers with a tool that allows them to bridge the gap
for particular negotiated transactions.
Contact Geraci Law Firm at (949) 298-8050 today, or contact
Kevin Kim directly for more information.