6 Ways Independent Sponsors Can Help Institutional Private Equity Funds Expand Reach & Diversify

[Published on June 6th 2024]

Institutional private equity funds wield substantial resources and expertise in navigating complex investment landscapes. The rise of independent sponsors presents an opportunity for these funds to expand their reach, diversify their portfolios, and capitalize on unique deal flow. This article explores six reasons why institutional private equity funds need to engage with independent sponsors.

1. Embracing Diversity and Differentiation

Institutional private equity funds traditionally focus on large-scale transactions and established market sectors. While this approach has proven successful, it also limits the scope of potential investments and exposes funds to concentration risk. Partnering with independent sponsors offers a pathway to diversification, enabling funds to access niche markets, emerging industries, and innovative deal structures. Independent sponsors often specialize in specific sectors or geographies, providing institutional funds with targeted exposure to areas outside their core competency. By collaborating with independent sponsors, funds can differentiate their portfolios, mitigate risk, and unlock new avenues for value creation.

2. Leveraging Complementary Expertise and Networks

Independent sponsors bring a wealth of industry expertise, operational acumen, and entrepreneurial spirit to the table. Unlike institutional funds, which may operate within more rigid structures, independent sponsors often have a hands-on approach to deal sourcing, due diligence, and post-acquisition management. Partnering with independent sponsors allows institutional funds to tap into this specialized knowledge and leverage their extensive networks. Independent sponsors often have deep relationships with local operators, industry insiders, and other key stakeholders, facilitating access to proprietary deal flow and value-enhancing opportunities.

3. Flexibility in Deal Structuring and Execution

Institutional private equity funds typically adhere to standardized investment criteria and deal structures, which may limit their ability to capitalize on certain opportunities. Independent sponsors, on the other hand, are known for their flexibility and agility in deal execution.

Independent sponsors can tailor transactions to meet the specific needs and preferences of institutional funds, whether it involves co-investment opportunities, customized terms, or sector-specific mandates. This flexibility enables institutional funds to participate in a broader range of transactions, optimize their risk-return profile, and adapt to changing market conditions.

4. Alignment of Interests and Risk Sharing

One of the key advantages of partnering with independent sponsors is the alignment of interests between investors and sponsors. Independent sponsors typically invest their own capital alongside that of their institutional partners, aligning incentives and fostering a shared commitment to success.

This alignment of interests mitigates agency costs and ensures that both parties are fully invested in achieving superior investment outcomes. Independent sponsors have a personal stake in the success of each transaction, driving disciplined decision-making, prudent risk management, and proactive value creation.

5. Accessing Proprietary Deal Flow and Emerging Opportunities

Engaging with independent sponsors allows institutional funds to expand their network, uncover proprietary deal flow, and identify attractive investment opportunities that may not be accessible through traditional channels.

6. Catalyzing Innovation and Value Creation

Collaborating with independent sponsors can catalyze innovation and value creation within institutional private equity funds. Independent sponsors often bring a fresh perspective, entrepreneurial mindset, and creative problem-solving approach to the table, challenging conventional wisdom and driving strategic evolution. By embracing the diversity of thought and expertise offered by independent sponsors, institutional funds can enhance their investment processes, optimize portfolio performance, and position themselves for long-term success in a dynamic and competitive market landscape.

Conclusion

Institutional private equity funds have much to gain from supporting independent sponsors. By embracing diversity, leveraging complementary expertise, and fostering alignment of interests, institutional funds can diversify their portfolios, access unique deal flow, and drive superior investment outcomes.

As the private equity landscape continues to evolve, collaboration between institutional funds and independent sponsors will play an increasingly important role in shaping the future of the industry. By forging strategic partnerships, sharing knowledge, and embracing innovation, institutional funds can position themselves at the forefront of change and unlock new opportunities for growth and value creation.

To connect with leading independent sponsors, check out the iGlobal Forum Independent Sponsors Summit, taking place September 17-18 in New York City.

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About the Author
David Acharya is the Managing Partner of ACP (www.acp-co.com) where he oversees all aspects of the firm’s investing, management, and strategic activities. He brings over 25 years of investing and transacting experience to ACP. He is a frequent speaker at industry events and is recognized by his peers for his expertise in private equity, capital markets, and portfolio value creation. Before establishing ACP, Mr. Acharya was a partner of AGI Partners, LLC, a private equity firm, and played a key role in the development of the firm including strategy, hiring, and fundraising. He served on the board of directors for Impact XM and On Location until its successful exit to a global private equity firm. Earlier, Mr. Acharya was a Director of an NYC-based private equity firm where he was responsible for investment sourcing and execution. Among other accomplishments, he sourced and executed Revolution Dancewear, co-sponsored with Incline Equity Partners, and was sold to Audax Group. Previously, Mr. Acharya was a Vice President with Apprise Media, a private equity firm focused on niche media investments, where he worked with the founders of PRIMEDIA, a former KKR founded portfolio company. Mr. Acharya invested over $200 million in niche media companies across digital, events, and print products in North America, Europe, and Asia. He made significant contributions to Apprise Media’s largest portfolio company Canon Communications, a B2B media company. Canon was successfully sold to United Business Media in 2010. Mr. Acharya spent 10 years as an investment banker in the highly ranked leveraged finance groups of JP Morgan Chase and Toronto Dominion Securities. He advised, structured, and raised over $18 billion of capital for leading financial sponsors, telecommunications, media, and consumer product companies across the globe. He also advised clients on debt tender/consent transactions that affected over $4 billion of debt. While at Toronto Dominion and as part of its merchant banking initiatives, he was involved in numerous equity investments including Rural Cellular Corporation (sold to Verizon), T-Mobile, Bresnan Communications, and Intermedia Communications (Leo Hindery’s Cable Venture). In 2020, after completing his term as President of the New York Chapter of the Association for Corporate Growth (ACG), Mr. Acharya was elected as Chairperson. Additionally, he was elected to the ACG Global Board of Directors. In recognition of his years of leadership and volunteerism, he was honored with the ACG Meritorious Award. In 2024, Mr. Acharya’s contributions to the finance industry were celebrated by being named to Crain’s New York Business’ 2024 List of Notable Leaders in Finance Mr. Acharya is a graduate of St. John’s University and holds B.S. and M.B.A. degrees with honors.

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