EXCLUSIVE Jefferies waives buyout fund manager investing in commercial sources

People walk past the offices of Jefferies Financial Group in Manhattan, New York, U.S., December 8, 2021. REUTERS/Eduardo Munoz

Jan 18 (Reuters) – Jefferies Financial Group Inc (JEF.N) is abandoning efforts to raise a billion dollar fund to buy stakes in private equity fund managers, giving up a niche and lucrative corner of asset management, people familiar with the material said.

It’s a blow to Jefferies’ Leucadia Asset Management division, which offers alternative investment products such as private equity. The asset management business reported a 52% drop in net revenue in the three months to end November to $43 million, citing lower investment returns.

Leucadia Asset Management partnered in 2019 with Stonyrock Partners LP, a private equity firm founded by veterans of Blackstone Inc (BX.N) and Carlyle Group Inc (CG.O), to raise funds to invest in equity investments of private equity fund managers.

Dubbed Stonyrock Alt Fund I, the fund was looking to raise $1 billion but had only raised $38 million as of April 2021, according to a regulatory filing at the time.

The sources requested anonymity as the matter is confidential. A Jefferies spokesperson declined to comment. Stonyrock executives did not immediately respond to requests for comment.

Investors are increasingly skeptical that there are enough attractive opportunities to acquire stakes in private equity firms to sustain the number of dedicated funds that have been launched focusing on this strategy.

The market for private equity fund manager holdings is dominated by a few large companies, including Blue Owl Capital Inc (OWL.N) through its Dyal franchise, Blackstone Inc (BX.N) and Petershill Partners, a unit of Goldman Sachs Group Inc (GS.N).

A handful of other firms, including Investcorp, Bonaccord Capital and Hunter Point Capital, compete by grabbing the interests of mostly middle-market managers.

Stonyrock and Jefferies have made at least one investment together – the 2019 acquisition of a stake in Oak Hill Capital, a Stamford, Connecticut-based private equity firm with around $9 billion in assets under management . Jefferies funded the investment through its balance sheet, one of the sources said.

Capital that investors committed to Stonyrock Alt Fund I will be returned to them, the sources said.

Stonyrock Partners was founded in 2018 by Craig Schortzmann, a former executive in Blackstone’s private equity fund manager equity unit, and Sean Gallary, who ran a similar division for Carlyle Group (CG.O) for about a year, according to his LinkedIn page.

Leucadia Asset Management was launched in 2013 and has $37 billion in assets under management, including in hedge funds and corporate credit.

Reporting by Chibuike Oguh in New York; Editing by Will Dunham

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