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Dyal Capital raises $837 million for hedge fund manager stakes

Firm: Dyal Capital Partners

Fund: Dyal Capital Partners II LP

Target: $1.5 billion

Amount Raised: $837 million from three pools

The effort marks a follow-up to Dyal’s $1.3 billion debut fund, which closed in December 2012, ahead of its $1 billion target, after being set up by Neuberger Berman Group.

The rapid turnaround for Fund II signals that Neuberger Berman’s bet appears to be paying off on this relatively new fund breed that commingles private equity and hedge strategies by purchasing minority stakes in high-performing hedge fund managers. The “very successful” Dyal I has made several investments in hedge fund companies and Fund II is expected to close before too long, according to a person familiar with the firm.

In an April 2013 interview with Buyouts, Tony Tutrone, head of alternative investments at Neuberger Berman, singled out Dyal Capital as an area he is most interested in growing. “The results have been very, very good,” Tutrone said about the fund’s six investments at the time.

Among LPs in the fund, the Alameda County Employees’ Retirement Association committed $40 million to Dyal II, according to minutes from the pension system’s July 9 investment meeting.

The New Jersey State Investment Council approved up to $250 million for Dyal II, including $200 million to the fund and up to $50 million in co-investment opportunities, according to an agenda item for the pension system’s June 23 meeting. The pension system had committed $200 million to Fund I.

Fund II aims to make equity investments in hedge funds with $1.5 billion to $5 billion in assets under management, according to a memo to the state’s investment committee. Investments in the fund are expected to earn low- to mid-teen annualized returns with low volatility and significant upside potential, according to the memo.

“Dyal’s ability to leverage Neuberger’s platform to provide hedge funds with client introductions, consultant coverage, and other support services make them an attractive partner for hedge funds considering selling stakes in their firms,” according to the memo.

Dyal Capital’s investment team of Michael Rees, Sean Ward, and Mark O’Sullivan worked together at Lehman Brothers, where they acquired minority equity stakes in D.E. Shaw & Co., GLG Partners and Spinnaker Group. Minority investments from Dyal’s first fund include Scopia Fund Management, Waterfall Asset Management, Pinnacle Asset Management and Mast Capital Management, according to prepared statements from the firm.

Dyal Capital made three Form D filings related to Dyal II, including $311 million raised for Dyal II US Investors LP, $466 million for Dyal II Offshore Investors LP and $60 million for Dyal Pension Investors LP.

A spokesman from Neuberger Berman declined to comment.

The Blackstone Group also runs private equity vehicles that invest in hedge fund managers, while Goldman Sachs & Co created a $1 billion pool in 2007, called Petershill Fund, that buys minority stakes in hedge fund firms. Petershill II LP disclosed $172 million in commitments in a Form D filing on March 13.