Pacenote closes debut fund to invest alongside independent sponsors

As interest among limited partners for direct investing continues to rise, GPs are looking for ways to partner with their fund investors, mostly through co-investing.

But GPs without funds, known as independent sponsors, have also seen a surge in popularity. Talented dealmakers leave larger shops to find deals on their own without a dedicated pool of capital. This strategy requires the dealmakers to find capital for each investment, which can be a laborious process.

Pacenote Capital, formed in 2019, is providing a way to aggregate capital from LPs interested in building direct exposure to investments. The firm closed its debut fund on $87.5 million to directly invest in deals alongside independent sponsors, according to sources.

Pacenote works in the smaller side of the mid-market, with Fund I beating its $50 million target. The firm received permission from LPs to go over its $75 million cap, one of the sources told Buyouts.

Pacenote’s capital came from endowments, foundations and family offices, as well as personal commitments from executives on the LP and GP side, sources said. Pacenote is making a $4 million GP commitment, the source said.

As part of the investment process, Pacenote’s LPs pay fees and carried interest to the GP, while Pacenote also pays fees and carry as part of the independent sponsor’s transaction, the source said.

The firm has not started deploying Fund I yet, the source said. Pacenote is targeting eight to 10 investments using equity checks of $5 million to $10 million, the source said, and the firm can also source co-investment capital from its LPs to handle larger deals.

Pacenote is led by managing partners Casey Peters, former principal in distribution banking at Mercury Capital Advisors; Matthew Evans, who previously worked as a distribution partner at Pinnacle Trust Partners; and Sam Cannon, former director of investment origination at Global Endowment Management.

Pacenote also runs a placement agent business in which it works with newer funds to raise capital. While the focus of the firm’s debut fund is on finding the strongest investments, the firm could work with an independent sponsor on raising its first fund down the line, after it gets comfortable with its strategy, execution and operations, the source said.

Pacenote’s fund hits the market at a time when fundraising woes continue, especially for emerging managers. The market challenges could keep more new firms sticking with deal-by-deal investing as more capital pools emerge to back these strategies.

First-time funds globally raised around $25 billion last year, compared with $47.6 billion in 2022, according to Buyouts data.

“It’s a challenging fundraising market because what has happened over time is that LPs have consolidated their relationships … with GPs, [and] that has favored the larger GPs. As this industry has grown and grown and grown, however, there are people spinning out. So the spin-outs have not stopped, but raising the first time fund is a little challenging when it comes to LP adoption,” Elizabeth Weymouth, founder of Grafine Partners, which backs emerging managers, told Buyouts in a prior interview.