Renovo, Balmoral, Hidden Harbor raise special-situation funds

Storms rumbled across northern New Jersey this week. We received at least two flash flood warnings and a rare tornado warning in my ruby-slippered hamlet of Fanwood.

Private equity land, meanwhile, basks under sunny skies. But Solveigh Marcks, managing director and founder of The Denali Group, an executive search firm, said during a recent webinar that she sees some buyout firms boarding up the windows and tying down the furniture.

Less figuratively speaking, they’re launching special-situation funds. These are pools earmarked for deep-value deals and hairy turnarounds, and their managers will be ready to pounce should the economy turn. And if the good times continue?

Then the funds get deployed in corporate carveouts and other complex situations that can be found in both good times and bad. Firms recently raising special-situations funds include Renovo Capital, Dallas; Balmoral Funds, Los Angeles; and Hidden Harbor Capital Partners, Boca Raton, Florida.

Marcks discussed several other industry trends that have implications for recruitment:

  • The industry has gone add-on crazy–an effort to combat high prices. The idea is to buy a series of small companies for reasonable prices, then combine them into a big company that can command a nose-bleed multiple. The trend puts a premium on job candidates “with add-on identification and sourcing capabilities,” as well as platform integration skills, said Marcks.
  • Private equity firms have expanded into debt investing, taking advantage of limited partner demand for high-income-generating strategies. (I highlight two such firms in the fundraising section below–Adams Street Partnersand Silver Lake Partners.) One recent twist on the trend: more firms target non-sponsored deals. Without a sponsor at the helm, creditors exert more control of the company. According to Marcks, such firms want job candidates with strong credit skills, along with both sponsor and corporate relationships.
  • The rise of co-investments has led to two recruitment trends. “Investment professionals with direct co-investment experience in buyouts are definitely in demand to join co-investment programs for both dedicated funds and inside LP organizations,” said Marcks. Second, some buyout firms add a co-investment specialist to their investor relations team. That person oversees deal syndication, along with deal monitoring and communications with co-investors.

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