Five Questions with Hark Capital’s Doug Cruikshank

Doug Cruikshank is head of fund financing and Hark Capital at Aberdeen Standard Investments, where he leads credit funds that make NAV loans to older PE funds’ portfolio companies. Cruikshank spoke with Buyouts about the evolving liquidity market within PE.

How is liquidity evolving in the PE market, and where does Hark Capital fit within that evolution?

As asset classes mature, which is what  PE Is continuing to do, they get more liquid., and they get more liquid in more spots along the chain. The chain goes everywhere from the very beginning, where capital call line banks provide liquidity early, on all the way to the end of the chain, which deals with secondaries.

We just provide another piece in that chain, after the investment period of a fund but before the fund really gets to the end of its life and doesn’t have any more assets. We’re a natural extension of the liquidity improving across this asset class, and we think that that’s positive for both the LPs and the GPs.

Check out the full interview, published in Buyouts:

Middle Market Deal of the Year: L Catterton built parents’ trust in Zarbee’s Naturals

Why they won: 9.7x multiple and 43% IRR, revenue increased 15x over a seven-year hold

When L Catterton in 2011 acquired a majority of Zarbee’s Naturals, it bet it could build a new growth category that took advantage of long-term consumer trends around brand authenticity, health and wellness, and investing in children’s products.

When it sold the company to Johnson & Johnson Consumer in 2018, after expanding Zarbee’s from a line of honey-based children’s cough syrup into a market-leading provider of natural over-the-counter products, that bet paid off – to the tune of a 9.7x gross multiple and a 43 percent IRR.

L Catterton co-CEO Scott Dahnke said the deal reminded him of a quote from the 1980s TV show “The A-Team”: “I love it when a plan comes together.”

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Trump administration outlines plan to speed SBIC licensing

The U.S. Small Business Administration, facing criticism for a slowdown in licensing times in the Small Business Investment Company program, is working on a series of fixes to improve the efficiency of the process.

The SBIC program, which provides government-backed leverage for GPs that invest in equity and debt of qualifying small businesses, has broad bipartisan support as a cost-effective way to help small businesses and spur economic growth.

But investment professionals have been frustrated by the recent administration of the program, complaining that long wait times for SBIC licenses have made the program less appealing to both GPs and their LP investors.

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CIOs of large public systems explain how new managers can get their money

Large public pensions are always on the lookout for new talent and smaller managers, and the CIOs of four large pension systems recently shared advice to firms looking to break in.

The CIOs of the $151 billion Florida State Board of Administration, the $150 billion Teacher Retirement System of Texas, the $120 billion New York State Teachers’ Retirement System, and $28 billion Texas Employees’ Retirement System discussed their approaches to finding new managers at Texas Teachers’ annual emerging manager conference on February 7.

While each pension fund had its own policies, some common themes that emerged included the importance of specialization, the need for patience, and a sharp focus on returns.

All four CIOs said emerging managers need to punch above their weight if they’re going to catch a pension fund’s attention.

“It’s well-established in the academic literature that small or newer managers, for whatever reason – hunger, motivation – tend to produce some pretty persistent alpha over the years,” Florida SBA’s Ash Williams said.

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Blackstone to focus on ‘unloved’ large side of the market

Blackstone Group’s private equity head, speaking at a recent Oregon pension meeting, said the frenzy for middle-market private equity deals has made the larger end of the market relatively more attractive than ever.

While many LPs are skeptical of megafunds’ ability to continue to provide top-tier returns, Blackstone’s Joseph Baratta said many “unloved” large companies or overlooked divisions of companies are good bets for the type of operational improvements that only a firm like Blackstone can provide.

“We think that the large end of the market is relatively more attractive today than it has ever been,” Baratta said.

Published by PE Hub:

Commonfund sees value in overlooked secondary niches

While many investors are frustrated with high prices on secondary private equity assets, Commonfund still sees value in overlooked corners of the market.

The market for secondary transactions, which Evercore recently reported grew a third to $72 billion in 2018 from $54 billion in 2017, is playing an increasingly important role in investors’ PE strategies. Commonfund, which manages $24.1 billion in endowment and foundation assets, tries to stay a step ahead by looking for opportunities in venture capital, emerging markets, and other areas where competition is less heated and prices are lower.

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Trump administration knocked over long delays in SBIC licensing

The government’s small business investment company program is losing some of its luster among managers as long licensing times and the recent government shutdown hamper LPs’ ability to reliably deploy capital to government-backed small-business funds.

GPs and LPs alike complained to Buyouts about long wait times for SBIC licenses – and that was before the government shutdown worsened the backlog at the U.S. Small Business Administration. Most say SBICs still offer attractive opportunities for investment, but many are concerned that the program is trending in the wrong direction.

Unexpected slowdowns

Attorney Mark Kromkowski, head of McGuireWoods’ SBIC Fund Formation and Transactional Group, said approvals that used to take six months now commonly take a year or more. While some delay should be expected whenever a presidential election leads to turnover of key SBA staffers, the transition between the Obama administration and the Trump administration had unexpected slowdowns, especially for a program that is popular with both Republicans and Democrats, Kromkowski said.

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