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Private Equity Dealmakers Venturing Out on Their Own

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With an industry flush with cash, private equity rainmakers are setting up shop on their own and leaving their large firms behind. Fundraising is robust with such a low-interest rate environment, and huge sums of money are flowing into private equity from institutional investors. Additionally, new startup private equity firms led by people who are highly regarded in the industry are generating millions of dollars in capital.

Statistics show that first-time private equity firms generated nearly $660 million in capital this year. The figure is up by one-third from its high in 2011. The record-breaking fundraising has many entrepreneurs eyeing these large financial payouts. Frank Steinherr, a partner at the law firm of McDermott Will & Emery, said that many entrepreneurs are flooding the market while it is red hot.

Examples include former members of the Apollo Global Management fund, who generated close to $500 million for their new fund Gamut Capital Management. Former executives at Apollo also raised nearly $1 billion a month later for Gamut. More startups are in the works as the dollar figures involved are staggering.

Private equity funds worldwide generated close to $222 billion through the first half of 2017, and fundraising through the third quarter topped $100 billion. Many wealthy investors are looking for new investments that will outpace the S&P 500 in the long-term.

Dealmakers in the private equity industry cite several reasons for venturing out on their own, and one of them is more autonomy. Instead of seeing all the financial rewards go to the founders of private equity firms such as KKR & Co. and Blackstone L.P., the new startups also want to reap those financial rewards.

The founder of those two firms are billionaires, yet they take home millions of dollars in profits from their firms. The founders of KKR took home 23 percent of last year’s profits, which was roughly $63 million, and the founder of the Blackstone Group took home 8.5 percent of the profits, which totaled $45.6 million.

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