Scott Conners, president and managing director of FlowStone Partners, sees an issue in the private equity space.
“High-net-worth investors, particularly the mass affluent, are just really underrepresented in alternatives and private equity specifically,” he told Buyouts. “How do you get access to capital that wants to be in private equity but doesn’t have a place to go right now?”
Conners, who spent 22 years at secondaries firm Landmark Partners, has come out of a brief retirement to partner with Cresset on a new product designed to help answer that question: the FlowStone Opportunity Fund, a vehicle providing wealthy investors with easier access to private equity deals in secondaries, funds and a select few co-investments with a limited liquidity option.
Conners said that as the private equity space has grown over the last few decades, it has never lost its focus on larger institutional investors, who often commit hundreds of millions of dollars at a time. “What works for them doesn’t necessarily work for the guy who’s worth $5 million or the guy who’s worth $50 million,” he added.
With the number of family offices and the wealth they hold growing, many have been looking for ways to get family offices and high-net-worth investors more involved in private equity. This could be through wealth management firms opening family office services or family offices and wealthy investors building their own in-house capacities.
FlowStone is targeting investors worth between $5 million to $100 million. Since becoming effective at the end of May, the fund has raised $32 million towards a goal of $50 million by the end of the year. It has a $100,000 minimum investment. It charges a management fee of 1.25 percent, fund expenses are capped at 0.7 percent, and it has a 10 percent performance fee, subject to a high-water mark.
So far, Conners told Buyouts, the average investment has been about $500,000 from about 60 investors.
FlowStone has three main investment buckets in private equity: secondaries, primary investments and co-investments.
Secondaries will make up 80 percent or more of its portfolio. Conners said FlowStone will usually source transactions through firms like Greenhill Cogent, Evercore and Park Hill, among others.
“They’re broadly diversified partnership portfolios, which is right down the middle of the plate for us,” he told Buyouts.
Primary investments into funds will top out at about 20 percent of their investments and typically focus on buyout, growth equity and private credit lower middle market funds in the $1 billion to $5 billion range.
Co-investments will be “really opportunistic” and comprise up to 5 percent of the portfolio, and will happen alongside GPs where FlowStone has already made a primary commitment.
The fund will also do longer holds than traditional private equity, between three and 10 years.
One of the unique aspects of the fund is the limited liquidity it will allow individual investors. They will be able to buy in or sell out of the fund on a quarterly basis, much different than a traditional private equity investment, which generally requires lock-ups of 10 years or more. Only 5 percent of AUM can be extracted each quarter, and that is on a pro rata basis.
FlowStone came to be in conversations between Conners and Cresset co-founder Avy Stein, whom Conners met when they worked on a GP-led secondary deal. They wanted to “democratize” the asset class but also provide longer holds than a traditional fund.
While FlowStone will be operated as a separate entity, all its initial capital was sourced from Cresset’s wealth advisory network. Conners told Buyouts FlowStone expected to raise external capital in the fourth quarter, maybe up to $10 million.
Conners cited Partners Group’s private equity vehicles as one of the sources of inspiration for FlowStone. He hopes the fund can grow to as much as $2.5 billion by 2027.
“We think the market is definitely there, and if we execute we should be able to get there,” he said.