Banyan Capital taps into retail investors for long-duration strategy

Banyan Capital Partners set up an evergreen vehicle for retail investors to capitalize the mid-market private equity firm’s long-term investing.

In December, Banyan secured C$216 million ($172 million) for Banyan Committed Capital to make mostly control investments in North American businesses with EBITDA of at least $5 million. Assets will be held flexibly, but generally beyond PE’s usual three-to-five-year hold period.

Uniquely, limited partners committing to the fund are hundreds of high-net-worth individuals, Banyan managing director and group head Jeff Wigle told Buyouts.

The fund was launched last year to receive allocations from wealthy investors, now totaling more than 750, and upon closing, expanded the firm’s pool to more than C$500 million. With additional commitments over the next three to five years, Wigle expects that number to reach upwards of C$1 billion.

Retail investors have long been touted as underserved in private markets, especially as compared with institutions. Today, many PE shops, including giants like Apollo, Blackstone and KKR, are building platforms and adding capabilities to tap into this fresh source of capital.

For Banyan, the platform and capabilities were created more than a decade ago. Then, the one-time institutionally-backed PE firm partnered with the private capital arm of Connor, Clark & Lunn Financial Group, a $105 billion asset manager with a big network of well-heeled clients.

Originally, the partnership saw Banyan capitalize deals through CC&L’s balance sheet, with CC&L in turn syndicating 80 percent of a transaction’s cost with clients.

For several years, the arrangement worked, “freeing us up” from traditional fundraising, Wigle said, and allowing Banyan to focus on dealmaking and company-building. It also facilitated longer-duration investing, as the firm had no contractual requirements to sell a business and could instead tailor holds to each investment.

The structure also worked for wealthy investors, Wigle said, because CC&L’s network consists of entrepreneurs who are eager to gain access to alternative assets and have a high degree of comfort with long horizons. “Our philosophy of long-term investing lines up well with our investor base.”

Retail fundraising 2.0

Banyan Committed Capital was introduced as the next iteration of Banyan and CC&L’s retail capital raising model. It improves on the prior deal-by-deal approach, Wigle said, by enabling high-net-worth individuals to pool larger amounts of their capital more easily for participation in multiple investments.

The new evergreen vehicle also limits the exposure to CC&L’s balance sheet. This issue emerged, Wigle said, as the size of Banyan’s acquisitions, carve-outs, recaps, successions and other deals began to grow. Investments presently range from $10 million to $50 million per transaction, compared to a range of $2 million to $10 million in 2010.

Banyan Committed Capital includes a secondary mechanism to permit liquidity events, with new wealthy investors buying the stakes of those cashing out. Liquidity requests are, however, fairly rare. “It’s a very bespoke strategy,” Wigle said.

Since partnering with CC&L and its client network, Banyan has invested in eight platform companies. Its oldest active investment, Purity Life, a distributor of natural health products to independent stores and chains, has been in the portfolio for 10 years. Wigle calls it “a once in a lifetime investment” for which there are no plans to sell.

Banyan Committed Capital completed its inaugural deal earlier this year. It invested in Innovative Surface Solutions, a distributor of liquid surface solutions to large-treated salt partners, commercial customers, water treatment clients and government agencies.

Banyan, founded in 1998, is led by Wigle, managing directors Simon Gélinas and Matt Segal, and Matt O’Brien, president and managing partner, private market investments and CC&L Infrastructure. Other senior members of the team are vice president David Beaumont, senior associate Igor Verechaka, and associate, business development, Scott Morrison.