Silver Lake co-founder starts new firm to manage his own wealth
James Davidson's Paxion Partners is structured in a way that would permit it to eventually manage outside capital, including money raised from wealthy clients
Washington
JAMES Davidson, a co-founder of Silver Lake Management, is starting an investment firm to oversee his personal assets, formalising a long-standing arrangement with two outside money managers.
Mr Davidson teamed up with Michael Marks and Fritz Wolff to form Paxion Partners, a multi-family office based in Silver Lake's home town of Menlo Park, California, according to filings. Mr Marks is a founding partner of Riverwood Capital, another technology-oriented buyout firm based in Menlo Park, while Mr Wolff heads a Scottsdale, Arizona, real estate investment company that specialises in multi-family properties.
Originally a corporate securities attorney, Mr Davidson has been investing in technology for more than 25 years, first at Hambrecht & Quist and then at Silver Lake, the largest technology-focused buyout firm. While Mr Davidson and his partners created Paxion to invest in other areas of the economy on behalf of their families, the firm is structured in a way that would permit it to eventually manage outside capital, including money raised from wealthy Silver Lake clients.
"He probably wants to offer more diverse things for his own family and other families beyond just Silver Lake private equity," said Ted Cronin, the chief executive officer of Manchester Capital Management, a multi-family office in Manchester, Vermont, that was started by the descendants of Edmund Lynch, co-founder of brokerage Merrill Lynch.
"This is a way to build a structure that can do this," said Mr Cronin, who didn't have direct knowledge of Paxion and Mr Davidson's plans.
Mr Davidson, Mr Wolff and Mr Marks didn't return telephone calls seeking comment. Gemma Hart, a Silver Lake spokeswoman at Brunswick Group, declined to comment on the new firm.
Mr Davidson, 56, started Silver Lake in 1999 with Glenn Hutchins, David Roux and Roger McNamee to invest in mature companies ignored by investors during the Internet bubble. Thanks to a 2012 leadership transition, Mr Davidson is the last remaining Silver Lake co-founder who helps run the firm on a daily basis. Mr McNamee left in 2004 to set up Elevation Partners, a separate buyout firm whose other founders include rock star Bono, while Mr Hutchins and Mr Roux have reduced their stakes in Silver Lake and now serve as senior advisers.
Silver Lake and Paxion may have "overlapping limited partners", according to the private equity firm. While most of Silver Lake's clients are large institutions such as pension and sovereign wealth funds, it also caters to a small number of wealthy individuals.
Mr Davidson has briefed Silver Lake's investors on his new venture, assuring them that Paxion won't compete with or reduce the amount of time he devotes to the private equity firm, a person familiar with the situation said, requesting anonymity because the talks are confidential. The firms have taken steps to resolve any potential conflicts that Mr Davidson's dual role poses, including a pledge that Silver Lake will continue to be his "primary business activity", according to a Sept 8 filing by the private equity firm.
Mr Davidson joins a growing number of money managers who have set up separate investment firms to oversee their personal fortunes. Hedge fund manager Bill Ackman started his family office Table Management four years ago. Eric Mindich, founder of Eton Park Capital Management, created Everblue Management last October.
Paxion will have a much different investment mandate from Silver Lake, according to marketing materials the new firm filed to register with the US Securities and Exchange Commission in July. Paxion will structure its investments to "maximise after- tax wealth creation", and focus on income and estate tax "optimisation" along with "the preservation of purchasing power over time", the firm said. Capital commitments will last 20 to 40 years, the person familiar with the matter said, compared with the 10-year lockup that most private equity funds impose.
"The idea of investing in things that are somewhat illiquid but compound returns without taxation is really the right recipe," Mr Cronin said, referring to such a strategy in general terms. "That is a tremendous benefit for a family that doesn't need to spend a bunch of money out of their wealth."
The new firm will use its own staff and also employ outside managers to invest in areas ranging from real estate, infrastructure and energy ventures to private equity and publicly traded stocks and bonds. One area of focus will be affordable housing in the San Francisco Bay area, the person familiar with the situation said. The firm also plans to invest in a pair of venture capital funds run by Mr Marks's Riverwood, and will receive some of the performance fees these funds generate, according to Silver Lake's September filing.
While Paxion listed seven employees in its July filing with the SEC, the firm plans to hire additional asset managers to run its investments day-to-day, the person familiar with the situation said, with Mr Davidson's role restricted to providing strategic direction. The partners set up the firm to invest on behalf of five or six families, including their own, the person said.
Paxion's funds will charge a 1.5 per cent management fee during their first year of operation and as much as one per cent thereafter, according to the filing, and may also take an unspecified cut of investment profits known as carried interest. BLOOMBERG
