HighVista to beat target on 10th fund for ‘unusually compelling opportunity’ in small buyouts

The fund is among several that are bringing capital into a small and emerging manager ecosystem that is seeing a general reduction of capital flows.

HighVista Strategies is expected to announce the closing of its 10th flagship private equity fund, which backs small and emerging managers both through fund commitments and directly investing alongside them.

The fund is among several that are bringing capital into a small and emerging manager ecosystem that is seeing a general reduction of capital flows. Limited partners, in the tighter fundraising markets, have been paring down their commitment pacing and sticking with their deepest relationships, which are usually well established, larger firms.

In this case, newer and smaller managers, even those with strong track records, are having a tougher time finding capital. According to a recent report by StepStone Group, AUM for small buyouts has grown at a CAGR of 5 percent over the past decade, about a third of the rate at which large funds have gathered capital.

“There’s an unusually compelling opportunity right now in the small buyout segment due to how the cycle is playing out,” Scott Reed, partner at HighVista, told Buyouts. “When the liquidity tide goes out, as it has over the last 12 to 18 months, investors retreat from investing in emerging managers or small-cap GPs.

“Instead they concentrate their precious dry powder with their core relationships, which tend to be larger managers at the expense of smaller managers.”

Fund X is the first raised by HighVista since it acquired the US private markets business of Abrdn last year. The team closed the ninth flagship US private equity fund under the Abrdn brand on $500 million in 2020.

HighVista Private Equity X closed on $675 million, beating its $550 million target, the firm will announce. The total includes a “sizeable” GP commitment, sources said. The fund started investing earlier this year.

The firm was able to bring in several new investors, along with strong re-up activity from its existing clients. LPs in the fund include pensions, endowments, foundations and family offices, the sources said.

The fund employs a three-pronged strategy: it makes LP commitments to small and emerging funds; it partners with sub-$500 million specialist private equity sponsors to invest directly in companies with enterprise values of less than $150 million; and it deploys capital opportunistically in secondaries, both LP sales and GP-led processes.

“It’s a flexible strategy that allows us to have hybrid exposure to the small buyout ecosystem,” Reed said.

The opportunity set also includes independent sponsors, a part of the small-cap ecosystem that has evolved in recent years. Today, more talented dealmakers are choosing to invest deal-by-deal, building a portfolio of investments before attempting the challenging fundraising market.

“The quality of GPs operating as independent sponsors right now is much higher than we’ve seen in the past,” Reed said.

HighVista’s US private equity team is led by Reed, John Dickie, Whit Matthews, Rob Nagle and Ryan Tiffany.