General Atlantic Adds $3.3 Billion to Funds Chasing Growth Deals

(Bloomberg) -- General Atlantic raised $3.3 billion for its third closed-end investment fund, bringing its total arsenal of available capital to about $10 billion to pursue its growth-equity strategy.

Including the latest fund, the firm has amassed about $13 billion in the past five years. That amount also includes managed accounts, an evergreen vehicle and a commitment from employees, its executives said in an interview.

General Atlantic, unlike many of its private equity peers, doesn’t rely predominantly on traditional closed-end funds -- capital pools that invest over a set number of years. The New York-based firm has long funded most of its investments through staggered managed accounts and permanent capital commitments. About half of its investors are family offices.

The funding strategy gives General Atlantic the flexibility to stick with companies that may have a long runway to growth, Graves Tompkins, the firm’s head of capital partnering, said in an interview. While about 10 percent to 15 percent of the firm’s capital may be up for renewal in any given year, the consistency of its funding helps avoid challenges of typical fund cycles, he said.

For a standard decade-long fund, investing teams can spend months locked in fundraising mode and portfolio companies may wind up being sold because the fund is nearing the end of its lifespan.

Growth Equity

“When we meet with an entrepreneur, it’s a real selling point to say we’re never going to sell the company prematurely based on our own fundraising cycle,” Tompkins said. “When they’re making choices between who they want their partner to be, that really resonates.”

General Atlantic’s focus on growth-equity investing since its founding in 1980 stands out all the more as a vanguard of a strategy that traditional buyout firms are increasingly embracing. As many firms de-emphasize financial engineering -- the leveraging staple that the industry was founded on -- they are instead focusing on operational improvements to drive returns. A few have even launched their own dedicated growth-equity strategies.

“The fact that we’re long-term, family-led capital is a big differentiator in our investors’ minds,” said Chief Executive Officer Bill Ford. Even though General Atlantic’s investor base has grown to include endowments and other institutions in addition to families, “we don’t want to lose that part of our history, that ethos,” he said.

General Atlantic, whose recent returns have been in the high teens, net of fees, relies on scaling proven businesses by helping them build their management teams, expand internationally or formalize their sales strategy. More than half of General Atlantic’s portfolio companies have no debt.

Investor Needs

The firm draws from its various capital sources on a pro-rata basis, meaning that the $3.3 billion co-mingled fund that closed in March is allocated proportionally to the same deals done for separate accounts, the evergreen pool and the commitment by employees. Because investors in each of these vehicles have different start dates, the firm returns capital after exiting each company, rather than holding on to it for a given fund life. New investors participate from the starting point of the pool in which they are invested, with fees determined by size of their commitment.

The varying structures suit investors with different needs, Tompkins said.

General Atlantic started as the family office of Chuck Feeney, co-founder of Duty Free Shoppers Group. In the 1990s, when Feeney decided to give his money to philanthropy, the firm began to take on capital from other investors -- initially family offices and over time, more traditional institutional investors including endowments, pension plans and sovereign wealth funds.

Today the firm manages $25 billion across five sectors with 13 offices in nine countries.

Digital Economy

A global transition to a digital economy, the rise of the emerging market consumer and the increase in entrepreneurship all play to General Atlantic’s strengths over the coming years, Ford said. It’s investments include Uber Technologies Inc., Airbnb Inc. and BuzzFeed Inc.

“In the first generation of private equity, it was small partnerships,” Ford said. “No one really had a scale advantage, or a brand advantage, or a heritage advantage.”

That’s changing, he said. “The leaders are getting stronger right now in a couple of dimensions -- they’re ability to raise capital, their ability to attract and retain talent, and their ability to invest in their businesses to improve their value-add capability.”

To contact the reporters on this story: Melissa Mittelman in New York at mmittelman@bloomberg.net, David Carey in New York at dcarey13@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Michael Hytha

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