Parish Capital, a North Carolina-based funds-of-funds manager with $2 billion under management, has agreed to be sold to StepStone, according to StepStone’s chief executive, Monte Brem. The deal is expected to close in January of 2012. Terms were not disclosed.
“Parish is a great way for us to enhance our capabilities at the small-end of the market,” said Brem in an interview with Buyouts. Brem also cited Parish’s European expertise as a reason to buy the firm.
As part of the deal, two of Parish Capital’s three founders, Charles Merritt and James Mason, will help with the transition but may not have active roles after that, Brem said. The firm’s third founder, Wendell McCain, left Parish Capital in 2010 to start a new firm, Onset Capital Partners. The three founders, all of whom graduated from the University of North Carolina, founded Parish Capital in 2003.
One Parish Capital investor, who was not authorized to speak publicly about the sale, said, “We felt that they were smart guys, but they’ve had a ton of turnover, and when you have that kind of turnover, you start to feel that it’s not what you bought into.”
StepStone, which was spun out of another turnover-plagued firm, PCG, several years ago, is both an advisory firm and an asset manager. Its advisory clients—mainly pension funds, sovereign wealth funds and foundations—have more than $40 billion in private equity assets, while its asset management business would oversee about $10 billion if the Parish acquisition goes through, as expected.
StepStone has been on the acquisition trail of late. In 2010, the firm purchased SilverBrook Private Equity as well as Citigroup Private Equity, sharply boosting the firm’s overall managed assets.
Advisory clients of StepStone include the State of Wisconsin Investment Board, the New York State Teachers’ Retirement System and the Pennsylvania State Employees’ Retirement System, among others.
For its part, Parish Capital’s investors have included the California Public Employees’ Retirement System, the New York State Common Retirement Fund, the New York State Teachers’ Retirement System, the North Carolina Treasury and Duke Management Co.
A key question for StepStone is what it plans to do with its Parish Capital acquisition. Parish Capital has been known since its inception as an emerging funds-of-funds manager. According to Brem, however, StepStone “doesn’t have any plans to start fundraising for a successor, co-mingled, fund of funds,” and said StepStone plans to focus more on customized separate accounts.
Moreover, the departure of Merritt and Mason could activate “key man” provisions, potentially forcing StepStone to get reaffirmations from Parish Capital’s current investors about their intentions to remain committed.
News that Parish Capital had been seeking a buyer had been lingering for several months, ever since Fortune reported in June that the firm hired an investment bank.
Calls made to Parish Capital were not returned.