Private Equity’s ‘Solution Capital’ — Conversation with Nate Sleeper of Clayton, Dubilier & Rice

2017-07-17

Private equity, of course, is a core part of most large institutional investors’ portfolios. How core? As of last year, some 90% of large U.S. public pension funds maintained allocations to private equity – an investment amount that totalled nearly 10% of all U.S. pension assets. In fact, for some global endowments, public pension systems and sovereign wealth funds around the world, the dollar-weighted average proportion of total AUM invested in private equity had increased from 6% to 12% in just the...

Private equity, of course, is a core part of most large institutional investors’ portfolios. How core?

As of last year, some 90% of large U.S. public pension funds maintained allocations to private equity – an investment amount that totalled nearly 10% of all U.S. pension assets. In fact, for some global endowments, public pension systems and sovereign wealth funds around the world, the dollar-weighted average proportion of total AUM invested in private equity had increased from 6% to 12% in just the previous two years.

But while private equity continues to grow as an asset class, many LPs seek new strategies, moving beyond the traditional fund investments, including co-investments, co-sponsorships, and even direct investments – bypassing the PE firms completely.

Within this evolution of investment opportunities, a new approach has quietly been gaining traction. It’s called Solution Capital — highly customised transactions tailored for sellers who want to keep a substantial minority interest in the business being sold.

How does Solution Capital work? Why would a seller consider this route? What’s its probability for success?

Nate Sleeper is a Partner at Clayton, Dubilier & Rice. He has led or participated in dozens of these investments across a range of sectors.

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