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How Azimut Landed a Unique Deal in a Frenzied GP Stakes Market

Azimut Alternative Capital Partners is buying a stake in asset-based lender Pathlight Capital, marking its third U.S. private markets deal.

Azimut Alternative Capital Partners is acquiring a minority equity stake in Pathlight Capital, an asset-based lender based in Boston.

Jeff Brown, CEO of New York-based AACP, which is the U.S. subsidiary of European asset manager Azimut Group, said the deal involves buying a stake that represents about 20 percent of the firm, as well as contributing permanent capital to grow Pathlight’s business and help the firm invest more capital in its own products and align itself with investors.

“When we started the process in March, we had lunch outside,” Brown said. “Ultimately, this is a people business and the chemistry has to be right. We don’t want to do hundreds of deals. We want the best properties out there.”

Brown said the face-to-face connection, despite the pandemic, was helpful in cementing the deal. 

“They told us, ‘You are the only people who visited us,’” he said.

Pathlight Capital, which became an independent manager in 2018, is different from many private credit shops in that they lend based on assets as opposed to cash flows. In addition, Pathlight Capital’s deals aren’t driven by private equity sponsors, but instead by commercial banks, according to Brown. Among other differentiators, he said the firm has a proprietary system that uses data analytics and artificial intelligence to track credits. 

AACP will help Pathlight, which is primarily institutional, design customized products for different distribution channels, such as Sanctuary Wealth, which is a subsidiary of Azimut. Future products might include interval funds, listed vehicles, or traditional multi-year lock-up funds. 

Brown said he’s seeing a lot of buyers and sellers in the GP stakes market pushing through deals quickly. He believes a shortened process can’t yield good judgements about people and firms that will be permanent partners. “We’re saying no to a lot of stuff,” he said. “We don’t have a fund to invest out of and don’t have to put money to work. So we can be patient.”

AACP, founded in November 2019, partners with private market-focused alternative firms and provides them with permanent capital for expansion. In 2020, AACP bought an approximately 20 percent stake in Kennedy Lewis, a private credit firm. The Azimut subsidiary also partnered with the Moross and Bezos families to build a consumer-focused middle-market private equity firm called HighPost Capital.

Its latest investment Pathlight Capital provides creative financing solutions to allow management teams to fund working capital, debt refinancings, growth, acquisitions, dividends, and turnaround strategies. The firm manages $1.4 billion of committed capital.

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