In quick turnaround, Dyal comes back to market with Fund IV

Dyal Capital Partners isn’t wasting any time.

Fresh off the final close of its third flagship fund, which raised $5.3 billion for minority investments in private equity management companies, the firm this month launched its fourth pool focused on the strategy, four sources told Buyouts.

The Neuberger Berman division is targeting $5 billion with no cap for Fund IV, sources said.

Fund III closed on $5.3 billion in February, more than doubling its original $2.5 billion target, a statement from Neuberger Berman says. That fund is around 70 percent deployed, one source said. Deployment includes reserves for staged investment tranches, another source said.

Dyal invested Fund III as it was being raised; it had been in market since at least second-half 2014. Through the vehicle, Dyal took stakes in Vista Equity Partners, EnCap Investments, Silver Lake, H.I.G. Capital, Starwood Capital Group and KPS Capital Partners, the Neuberger statement says. Those deals represented more than half of Fund III’s capital.

Dyal, launched in 2011, is led by Michael Rees, managing director and head of the firm. Other senior executives include Managing Directors Sean Ward, a founding member of the Dyal investment team, Andrew Laurino, Mark O’Sullivan and Matthew Rees.

Through its deals, Dyal gets access to cash flows from management fees and carried interest. GPs can use the investments as a base of permanent capital on the balance sheet to provide liquidity to founders, expand the firm into new strategies and even fund the GP commitment in future funds. Dyal takes passive, minority stakes in management companies.

Several other competitors target strategies similar to Dyal’s. The biggest of the shops that take minority stakes in GP management companies are Goldman Sachs, through its Petershill group, and Blackstone Group.

Carlyle Group-backed AlpInvest is reportedly raising money for the strategy, as well as Credit Suisse and Hycroft.

The strategy has sparked controversy in the industry as critics argue such deals are simply means for founders to cash out, diluting future earnings for the next generation of leadership. Buyouts explored the issue in depth in a May cover feature subscribers can view here.

Action Item: Reach Michael Rees at michael.rees@nb.com

Photo of Michael Rees sourced from Dyal Capital Partners’ website

Correction: The senior executives at Dyal include Managing Director Matthew Rees. An earlier version of this story misstated his name.