Two former portfolio managers from Ontario Teachers’ Pension Plan have founded a new private equity firm targeting middle-market deals.
Peloton Capital Management announced Thursday that it has been launched by Steve Faraone and Mike Murray, both of whom worked for Ontario Teachers’ for more than ten years. The two are have partnered Stephen Smith, the co-founder of Canadian mortgage originator First National Financial, to create the firm.
Peloton aims to fill a need for middle market, long-duration capital in Canada, Murray said by phone Thursday.
“Our observation in the market is that a longer hold period is more compelling from an investor perspective,” Murray said. “You get the benefit of compounding and fewer friction costs. From a sourcing perspective, there’s a part of the market where entrepreneurs are looking for longer runways.”
Peloton will launch with a seed investment from Smith, who has already made a C$150 million (US$114.5 million) investment in the fund, according to the announcement.
Peloton is looking to raise between C$400 million and C$600 million for its first fund.
Bank of Montreal, CIBC, Royal Bank of Canada, and TD Bank Group will be making commitments to the fund, according to the announcement. Peloton will make between seven and ten platform investments in its first fund, the announcement said.
The firm will take roughly six years to invest its first fund, said Murray. The holding periodon each asset will be between eight and 12 years, according to Murray. The firm will be kicking off its formal fundraise on January 1, he said.
“We’re still finalizing our summary of terms for fees,” Murray said. “What we’re starting with isn’t different than what you would see at most private equity firms in terms of fees and carry.”
He added that the firm is still looking into a step-down fee, or a decrease in the management fee, once the capital has all been invested.
[II Deep Dive: Ontario Teachers’ Names New CIO]
Before starting Peloton, Murray worked for Ontario Teachers’ for 12 years, his LinkedIn profile shows. He, along with Faraone, played a major role in the development of the pension fund’s direct private equity program, according to the announcement.
“The team has known each other for a long time,” Murray said by phone. “We learned a lot at Teachers and cut our teeth on private equity. Eventually, we reached a point where we were looking to do something entrepreneurial.”
The firm’s ties to Ontario Teachers’ run deep. The former chief executive officer of Ontario Teachers’, who now works as the chancellor of Queen’s University, Jim Leech, will chair the firm’s advisory board, according to the announcement.