LP appetite for distressed fuels Banner Ridge’s $300m primary fundraise

Banner Ridge Partners, founded by veterans of Siguler Guff’s secondaries business, raised $300 million for an inaugural primary fund to invest in distressed, special situations and credit strategies.

Banner Ridge DSCO Fund I, launched prior to the health crisis, was designed to be a vehicle for two institutional clients, managing partner Anthony Cusano told Buyouts. The original target was about $100 million to $150 million.

Covid-19’s outbreak, however, spurred fresh interest in distressed and special situations on the part of limited partners, Cusano said. This was especially true for LPs who were significantly under-allocated to the asset class.

“The market came to us,” Cusano said, helping Banner Ridge to meet the $300 million hard cap. “We could have raised more than $300 million.”

In all, about a dozen LPs signed up. Among them was New Mexico Educational Retirement Board, which disclosed an $80 million commitment.

Fund I will invest in the offerings of distressed, special situations and credit sponsors globally, deploying $20 million to $40 million on average, Cusano said. It has already committed $300 million to 11 general partner teams and is expected to invest $450-million-plus through the recirculation of capital.

The rapid pace of investing suggests Banner Ridge could return to the market with Fund II by next year. Cusano declined to comment.

A specialized focus on distressed, special situations and credit is key to the strategy that Cusano and other Siguler Guff veterans brought to Banner Ridge’s launch in 2019. It drives the New York firm’s inaugural secondaries vehicle, Banner Ridge Secondary Fund III, closed just over a year ago at $550 million.

By establishing a primary platform, Banner Ridge “deepens the relationship across both LPs and GPs,” Cusano said. It also “gives us more to talk about,” including opportunities to partner in deals with distressed and special situations managers.

In practice, the primary and secondary platforms should be mutually reinforcing, Cusano said. For example, Banner Ridge’s ability to “look under the hood” through its secondaries deals will likely create opportunities on the primary side. “The benefits go both ways.”

The global secondaries market is expected to hit record volumes in 2021, building on a surge in GP-led deals in last year’s second half. For Banner Ridge, 2020 “was an exceptional year” that enabled deployment of the “vast majority” of Fund III, Cusano said.

Perhaps not surprisingly, Banner Ridge is now preparing to roll out a new secondaries offering with a $600 million target, the Wall Street Journal reported this month. It could bring in as much as $1 billion, the report said. Cusano declined to comment.

Cusano worked at Siguler Guff for nine years as a managing director, leading the start up and development of the secondaries strategy. He and partner C.J. Driessen founded Banner Ridge in June 2019 to leverage this track record with benefit of larger pools and an expanded team.

With the primary fund’s close, assets managed by Banner Ridge total more than $1 billion.