Fundless sponsorship, known as independent sponsorship, is gaining traction as investors pursue deals outside traditional PE fund structures. Independent sponsors, often ex-PE professionals, identify potential assets, negotiate acquisitions, and secure financing later. These sponsors work with a select group of investors—private market firms or family offices—for specific deals, bypassing commingled funds.
Amidst challenges in fundraising for established funds, independent sponsors are finding favor. They raise smaller capital pools compared to commingled funds, with benefits in the current climate, as evident from G-1 CapitalyticsTM report of a 40.9% drop in private capital fundraising and 22.6% dip in private equity activity.
The independent sponsor model offers distinct advantages in this environment. Notably, these sponsors raise a more modest capital pool compared to the targets of commingled funds. Christian Gore, the Founder of G-1 Capital based in Dallas, Texas, explains that their average equity request ranges between $20-35 million, often accompanied by prudent leverage.
Gore’s trajectory illustrates an ideal path for emerging fundless sponsors. Beginning with significant experience on the sell side, followed by involvement with prominent buy-side firms, a sponsor can progressively cultivate a track record of successful returns, positioning themselves
as attractive partners for LPs. “We believe every opportunity we present to our partners can perform on its own and prefer the separate account and/or direct JV model as a fiduciary to our LP’s performance”, said Cooper who leads G-1’s Acquisitions team.
From the investors’ perspective, supporting independent sponsors—often including discretionary PE funds, family offices, and co-investing mezzanine funds— offers greater control over the deal and underlying assets compared to traditional fund investments. Unlike the blind pool approach of commingled funds, LPs engaging with independent sponsors play a more direct role in deal selection, funding decisions, and investment strategy.
However, independent sponsors face tight competition for assets, sometimes even from firms they seek backing from. These sponsors might secure competitive bids and then request funding from defeated competitors, presenting intriguing dynamics as noted by Cooper.
In summary, independent sponsorship provides an alternative route into private equity, enabling investors to participate without adhering to traditional fund structures. Despite hurdles, their tailored approach offers strategic maneuverability and control, complementing the evolving investment landscape.