Golden Gate, in potential change, considers traditionally structured PE fund

Fundraising is slowing as LPs slow their pace of deployment amid overallocation pressures and dwindling distribution activities.

Golden Gate Capital, a firm long differentiated from other private equity firms with its evergreen fund, is exploring raising a traditionally structured private equity fund, sources told Buyouts.

No final decisions have been made, sources said. Golden Gate, in a statement, said, “We are currently focused on investing our current fund and supporting our portfolio companies and their management teams. We are not going to comment or speculate about future fundraising.”

Perpetual capital funds, which open for fundraising periodically but never actually close, are a rarity in the private equity industry. They afford the GP the flexibility to hold investments much longer than traditional funds, which generally have a five-year investment period and a fixed life, usually 10 years with two one-year extensions.

Other firms that have launched perpetual funds in recent years include Vista Equity, Blackstone Group and BlackRock.

Golden Gate, formed in 2000, has operated its evergreen fund by opening it for fundraising around every four years. In its most recent fundraising round, in 2020, the firm collected at least $2.6 billion, according to SEC documents.

Another fundraising round was expected this year, sources said, and several sources, including limited partners, speculated that fundraising could be harder this time because of the departure of several senior executives in recent years. The firm raised three traditional funds early in its life, but eventually shifted to the evergreen model.

There is a sense that LPs are eager to instill the discipline of a traditional fund structure, sources said. “It’s just a wonky … fund structure where in theory they could hold stuff indefinitely,” said an LP familiar with the firm.

As well, an industry source pointed out that the market has evolved such that LPs and GPs now have other options for long holds, including continuation funds. The benefits of the evergreen fund structure are less relevant today, the industry source said.

Some sources expect the firm to launch fundraising later this year.

Golden Gate’s principal owner is founder and principal managing director David Dominik, who launched the firm in 2000 after working at Bain Capital. The firm managed about $12.1 billion as of December 31, 2021, according to Golden Gate’s Form ADV filed in September. The firm on its website reports more than $19 billion in AUM.

The firm invests across sectors like consumer, financial services, industrials and software and tech-enabled services, according to Golden Gate’s website.

The firm has seen several senior executives leave over the years and form their own firms, including its former tech investing chief Rishi Chandna, who left and formed Lone View Capital. Another Golden Gate alum, Rajeev Amara, who led industrials investing at Golden Gate, launched Arcline Investment Management in 2018.

Its strategies are led by long-tenured executives: Mike Montgomery, who has been with the firm for about 17 years, leads multi-unit consumer; Dan Haspel, with 18 years at the firm, leads financial services; Javier Puig leads industrials, along with partners Felix Lo and Bob Kirby, who works as an operating partner. Lo has been with the firm for 19 years and Puig has 14 years. Finally, Matt Crump, with the firm for 12 years, leads software, IT and tech-enabled services.

If Golden Gate launches its fund this year, it will be entering a market more challenging than it’s been in years. Fundraising is slowing as LPs slow their pace of deployment amid overallocation pressures and dwindling distribution activities.

In the third quarter, some 252 buyout, growth, venture and other PE vehicles in North America raised $111 billion between July and September, down 20 percent from the second quarter, according to Buyouts’ data. That marked the second consecutive quarterly dip in capital inflows this year, even though the total amount raised through Q3 effectively matched the amount a year earlier, at about $410 billion.

Update: This report was updated to include information about Golden Gate’s earlier traditional PE funds.