Jefferies gives up on buyout fund manager investing business: sources

[NEW YORK] Jefferies Financial Group is abandoning an effort to raise a US$1 billion fund to buy stakes in private equity fund managers, giving up on a niche and lucrative corner of asset management, people familiar with the matter said.

It is a blow to Jefferies' Leucadia Asset Management division, which offers alternative investment products such as private equity.

The asset management business reported a 52 per cent drop in net revenues in the 3 months to the end of November to US$43 million, citing lower investment returns.

Leucadia Asset Management partnered in 2019 with Stonyrock Partners, a private equity firm founded by Blackstone and Carlyle Group veterans, to raise the fund to invest in private equity fund manager stakes.

Dubbed Stonyrock Alt Fund I, the fund was seeking to raise US$1 billion but had amassed only US$38 million as of April 2021, according to a regulatory filing at the time.

The sources requested anonymity because the matter is confidential. A Jefferies spokesperson declined to comment.

Stonyrock executives did not immediately respond to requests for comment.

Investors are becoming increasingly skeptical that there are enough attractive opportunities to acquire stakes in private equity firms to support the number of dedicated funds that have launched with a focus on this strategy.

The market for private equity fund manager stakes is dominated by a few big firms including Blue Owl Capital through its Dyal franchise, Blackstone and Petershill Partners, a unit of Goldman Sachs Group.

A handful of other firms, including Investcorp, Bonaccord Capital and Hunter Point Capital, compete by snapping up the interests of mostly middle-market managers.

Stonyrock and Jefferies made at least one investment together - the acquisition in 2019 of a stake in Oak Hill Capital, a Stamford, Connecticut-based private equity firm with about US$9 billion in assets under management.

Jefferies funded that investment through its balance sheet, one of the sources said.

Capital that investors committed to Stonyrock Alt Fund I will be returned to them, the sources said.

Stonyrock Partners was founded in 2018 by Craig Schortzmann, a former executive in Blackstone's private equity fund manager stakes unit, and Sean Gallary, who ran a similar division for Carlyle Group for about a year, according to his LinkedIn page.

Leucadia Asset Management was launched in 2013 and has US$37 billion in assets under management, including in hedge funds and corporate credit.

REUTERS