A co-founder of
Dealmakers on both sides of the move describe Timothy Fay‘s transition as an amicable one, giving Fay, who now is KPP’s West Cost managing partner in San Francisco, a chance to return to making the kind of deals—and especially the size of deals—he prefers.
At the same time, though, the move also underscores the uncertainties facing private equity shops that are affiliated with banks. Under last year’s Dodd-Frank financial reform law, bank holding companies will be limited in the future to investing 3 percent of their core, Tier 1 capital, in private equity or hedge funds, and they can contribute no more than 3 percent of the commitments to such funds.
Fay is expected to move to Seacoast in the summer.
“He’s returning to his roots,” said Thomas W. Gorman, a managing director at Seacoast, which is based in Danvers, Mass., and where three of its four current partners work now, with the fourth in San Francisco. “Tim will significantly bolster our presence out there.”
KPP and Seacoast have a common strategy—non-control investments in support of management teams at small, growing companies, typically with no other sponsor backing. But where Seacoast typically cuts checks of $3 million to $10 million, KPP today makes investments more in the $20 million to $25 million range.
“Tim always liked the smaller company market,” said John Sinnenberg, KPP’s chairman. Before co-founding KPP in 1998 as Key Mezzanine, the two men had worked together at
Fay said Seacoast is the kind of firm that KPP used to be before it moved up to larger deals. “The concentration of large deal business is much more East Coast driven,” Fay said. “This is what I like to do. If you make enough money, you should be able to focus on what you really like.”
Seacoast, a small business investment company, is investing out of its $75 million, 2003-vintage
Neither firm would discuss future fundraising, but Sinnenberg said KPP historically received half its funding from KeyCorp and half from outside investors, including pension funds, funds of funds, wealthy families and others. He said he could not discuss the mezz fund’s outlook under Dodd-Frank.
But KeyCorp, battered by the financial crisis, has been willing to exit non-core businesses to shore up its core banking franchise. In January, its investment banking arm, Key Capital Corp., spun off its private equity fund-of-funds
KPP has a proven team with a demonstrated track record and talented young managers ready to step up, Fay said. “Everyone will continue to do very well.”