Hartford HealthCare, the $4 billion fund supporting a Connecticut-based hospital system, is anchoring a new GP-stakes style fund for diverse managers.
The $400 million fund is being raised by Xponance, which is working alongside Investcorp to deploy the capital. Hartford is anchoring the fund with a $50 million commitment as its first investor, according to David Holmgren, the organization’s chief investment officer.
The new fund will target diverse and women-owned funds in private equity and private credit, among other alternative asset managers.
“These are the firms that are on the cusp of growing,” said Marquette Chester, senior managing director and head of alternatives at Xponance, over Zoom. “These are people with really good returns. They need to do something to accelerate or improve their businesses to facilitate a better, broader platform.”
The fund has a different model than a typical GP-stakes investment — and not just because it’s focused on diverse-owned managers.
With many of the largest GP stakes funds, asset managers buy a piece of an investment firm, sharing in its profits and offering liquidity to the firm’s owners. These investments are seen as long-term, passive, and income-producing. Two well known examples are Goldman Sachs’s Petershill Partners and Blue Owl Capital, which was known as Dyal Capital under its previous owner, Neuberger Berman.
“I've looked at Neuberger Berman, Petershill, and Blackstone, and I said we’re never going to compete with these people,” Chester said. “They were always at the very tip top size-wise.”
In addition to buying stakes in investment managers, the firm plans to be an active owner that will help guide the managers as their funds grow. The fund also plans to exit the investment seven to ten years after acquiring it. The principals also view the investments as seeding, rather than providing liquidity to an established manager.
“We are not just providers of capital, we’re truly active,” Holmgren said. “This is for the GPs to grow and develop.”
The exit strategy, according to Holmgren, is to have the general partner buy back its stake. “This is like having a natural put option on our funds,” he said.
Hartford is making the investment amid an “asset allocation pivot,” Holmgren said. He expects inflation to rise in the coming years and is positioning the organization toward more income-producing assets. This is a decision following a banner year for Hartford, which returned 34 percent, Holmgren said.
“I cannot see that in seven years from now that the inflation pressures are not higher than today,” Holmgren said. He doesn’t expect it to mirror the inflationary environment of the 1970s, but it will be a time when focusing on real returns could pay off.
Both Holmgren and Chester noted that while the fund is targeting strong returns, its focus on diverse-owned managers is just as important.
“I’ve always found that David was the type of investor that was one, focused on returns, but not to the mutual exclusivity of understanding more of the dynamics of what was going on around those returns,” Chester said. “It's about returns, but when you can do returns and have an impact on an organization, that’s even better.”
Holmgren agreed, emphasizing that the fund’s active approach will set emerging managers up better for the future.
“If they're suffering from drought, do you give them a bottle of water or build a well?” he said. “We're not just giving money to a manager. We're giving them resources to build their resources to take it to the next level.”
