Why more investors are choosing to go fundless

By Fay Margo, CEO

Independent sponsors, deal-by-deal specialists, fundless investors - whatever you like to call them - are finally emerging as an asset class in their own right.

For many years fundless investors were viewed somewhat sniffily by parts of the private capital industry, as being a fallback option for managers unable to raise a traditional fund, pursuing transactions one at a time merely to build enough track record to be able to raise a fund later on. 

The tide is finally turning.  Increasingly, investment firms are actively choosing the independent sponsor model over traditional fund structures. The appeal is clear: firms can focus exclusively on the most attractive deal opportunities without the pressure to deploy capital within a fixed investment period. They also do away with much of the administrative complexity and overheads associated with establishing and managing a fund.

As Zeina Bain, Managing Partner at our client Sullivan Street Partners, neatly puts it; “Being an independent sponsor gives you the freedom to focus on the quality of the deal rather than being boxed in by fund dynamics - whether that’s fundraising cycles, portfolio fit, or fixed deployment and exit timelines.” Independent sponsorship creates the flexibility to concentrate on "buying right, owning right, and selling right", while remaining fully aligned with LPs, according to Bain. “Ultimately, it raises the bar for investment quality," she explains.

The growing momentum behind the model was underscored by last week’s Independent Sponsor Forum, hosted by Headway Capital Partners and Addleshaw Goddard, which provided a ripe hunting ground for a swathe of new market entrants.

In his opening remarks, Headway co-founder Christiaan de Lint highlighted findings from the firm’s recent white paper. The report argues that independent sponsors often target higher returns than traditional private equity firms because each transaction carries greater personal financial risk, without the cushion of fund-level management fees. Combined with the increased selectivity fundless sponsors can afford themselves, this can translate into ambitious return expectations, with the paper citing targets above 3x MOIC and 30% IRR.

Another competitive advantage lies in speed. According to Guy Ellis, Managing Partner at Broadfield Capital Partners, independent sponsors can often move more quickly than traditional funds because LPs tend to be more responsive. “We have three regular backers that are able to sign off on materials very quickly,” he explained. In auction processes, that agility can be decisive. Independent sponsors are often able to move faster, with more skin in the game, with the added benefit of fewer “fund politics” around the eventual timing of an exit.

Industry initiatives are also helping to strengthen awareness and credibility around the model. Headway’s Forum, alongside the recently launched Independent Sponsor Forum roundtable from Invest Europe, which includes Brackendale client Weight Partners Capital, are contributing to a broader understanding of the sector’s role within private markets. At Brackendale, we are supporting that momentum through our work with a growing base of fundless sponsor clients, helping communicate the advantages and evolution of the model to the media.

As independent sponsors gain the recognition they deserve and become accepted as an integral part of the private equity landscape, hopefully the sector to evolve to include more female participants. One striking observation at last week’s Forum was a palpable lack of women amidst the sea of men in dark suits.  As the independent sponsor model matures, we look forward to seeing more women entering the fray.