Andrew Bernstein, managing director and co-head of private equity at Capital Dynamics, is at the helm of expanded initiatives at the $15 billion global asset manager.
How do you define the middle market?
Our focus, across all strategies, remains in middle-market funds. We are not so concerned with the overall fund size. Instead we focus on the underlying portfolio company that should have an enterprise value between $50 million and $1 billion. We are invested with over 350 GPs across different strategies like primaries, secondaries and portfolios we have taken over from other PE firms. About 120 of these GPs are our core relationships.
Do you invest in emerging managers?
We are a regular stop on the fundraising circuit. We don’t have a dedicated strategy for emerging managers, but we meet with managers raising their debut funds or even earlier. Our co-investment team spends lots of time with emerging managers looking at deals.
Whether we invest then or not, when managers come back with their second funds, the primary team uses the experience of the co-investment and credit teams to make an investment decision.
We invest with both specialist and generalist managers. For instance, for healthcare we would typically invest with specialist funds. They are in the know of [Washington] D.C. policy and trends, and the complexity of healthcare reimbursements and other processes.
Likewise, we prefer making investments with energy-specialist funds because deals there are club-driven and more relationship-oriented.
How has Capital Dynamics managed the changing fund-of-funds environment?
[We] look at it more as an evolution and we have evolved with our products as well.
In the early days of Capital Dynamics we mainly focused on primary investing. Over time, our offerings have evolved to include secondaries and co-investment/direct as well as private credit, with a focus on the mid-market. This has been a natural evolution, in large part by listening to our clients and what investors were looking for in the market.
Our primary business is the hub in this wheel. Deal sourcing comes from our primary relationships, and there are many synergies and cross-pollination between strategies.
Our co-investment fund allows our investors, like family offices, to dip their toes into direct investing and pay lower fees.
Why did Capital Dynamics decide to get into private credit?
My background before Capital Dynamics was in private credit. When I got here [in 2009], it was an obvious missing link in our product offerings for small and medium-sized businesses. It became an initiative to be deliberate in our expansion because we had an untapped treasure in our GP relationships. Given our market position, we had a strong origination hook for lending opportunities.
But we did not rush into the segment. We made sure we found the right team that fit in with our culture. We also searched for a team that had worked before and demonstrated results in different market cycles.
We hired Thomas Hall and Jens Ernberg, both from Credit Suisse Park View BDC, to lead the effort. They checked all the boxes.
Subsequently we added Matthew Bandini, Jonathan Barokas and Bryan Chen to the team.
How does Capital Dynamics’ strategy differ across geographies?
We realized that one-size-fits-all did not appeal to investors anymore. There was a need for specialization, so we began to design products and separate managed accounts that had different bells and whistles for our customers. Think of us as bespoke tailors crafting solutions for our clients.
For instance, our strategies can be denominated in specific currency or domiciled in a geography for tax purposes or spread across vintage years.
Our heaviest product weightings are in the U.S. and Europe.
There can be significant overlap in our strategies but we look through different lenses in order to tailor them to specific client preferences.
For instance, [environmental, social and governance] is one of the lenses we look through. In other cases, we will exclude investments in certain sectors based on client preference.
Action Item: Contact Andrew Bernstein at firstname.lastname@example.org.