An article titled, Startup out to overturn private equity model, in Financial News this week describes a UK team called Kingsley that is setting out to “overturn” the traditional private equity fund model, investing on a deal-by-deal basis and only charging fees on invested capital caught our eye. It is a good report about Kingsley’s strategy, but the young fund manager is not the first to use this model. They are just the latest one to do so.
The deal by deal model or pledge fund model exists already. We’ve seen it emerge in the venture capital segment over the past 12 years or so, particularly in the early-stage and angel investment as this article explains, and the WSJ reports that Duke Street Capital is now doing it and that LPs, like the New Jersey state pension fund are negotiating accounts with the likes of Blackstone for such kinds of deals.
And PEI adds the name of Quilvest to those practicing the model. Private Equity Manager published an article about the legal aspects of it in the private equity and buyout space. Nobody is saying that this model will take over the market, but they do conclude in most of the articles that it is an interesting trend and comes as a result of the growing reluctance amongst LPs about paying fees and tying up capital in the traditional model.