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Archived postPublished January 18, 2018 and kept in its original wording. Photographs are enhanced copies of the originals; each links to the original file.

Opportunities in the U.S. Small-Cap Private Equity Market

By JHU PEVC on January 18, 2018

Large leveraged buyout and mega-cap deals frequently appear in the news but much less is known about small-cap private equity deals. U.S. small-cap private equity managers have, on average, consistently outperformed U.S. mega-cap managers over 10-, 15-, and 20-year periods, according to Cambridge Associates in a report dated March 2017. In addition, private equity fund manager’s performance varies significantly so access to top managers is critical to generating investment returns (see Figure 1 and 2). Jonathan Sinex, Managing Director of Cordish Private Ventures, the family office and investment division of The Cordish Companies, and a Managing Director of Cordish Dixon Private Equity Partners, shared these insights with the Carey Private Equity and Venture Capital Club on November 8, 2017.

Figure 1: Private Equity Performance

Bar chart of annualised investment performance for the S&P 500, the U.S. buyout mega-cap index and the U.S. buyout small-cap index. Over 10 years: 7.5%, 10.0% and 12.8%. Over 15 years: 7.1%, 12.7% and 15.4%. Over 20 years: 7.9%, 11.3% and 13.0%.
Source: Cambridge Associates, Cordish Dixon.

Figure 2: North American Managers Market Benchmarks

Line chart of North American private equity annualised performance (IRR) benchmarks by quartile for vintage years 1994 to 2012: the top quartile line sits well above the median, which sits above the bottom quartile.
Source: Preqin Performance Analyst, Cordish Dixon.

These insights form the basis of the main investment thesis of Cordish Dixon Private Equity Partners (CDPEP), a joint venture between Cordish Private Ventures (CPV) and Dixon Advisory & Superannuation Services Limited of Australia, with a mandate to continue CPV’s strategy of investing in U.S.-based small cap managers and non-control investments in U.S. based small and lower-middle market founder and family-owned businesses seeking growth capital. CPV, on the other hand, focuses on active/control direct investments where there are synergies with the rest of the Cordish portfolio companies.

The speaker standing at the lectern beside a projection screen showing a slide titled The Cordish Companies.
Session of November 8, 2017. Photograph from the Club archive.View original

Jonathan gave an overview of the CDPEP and CPV platforms and shared the impressive returns the funds have generated. CDPEP’s U.S. Select Direct Private Equity Fund was selected by Preqin as one of the top 5 “Buyout Funds to Watch (Vintage 2015-2016).” In partnership with Goode Partners, in 2014, CDPEP acquired a majority stake in La Colombe, a leading coffee roaster, distributor, and retailer. Some of the key value creation initiatives included the opening of new retail units and establishing a pipeline of additional units, continued strong growth in wholesale and e-commerce, upgraded financials systems and back office infrastructure, and an enhanced management team. La Colombe’s strong growth attracted the attention of Hamdi Ulukaya, Founder and CEO of Greek yogurt company Chobani who bought the company in 2015 and provided CDPEP with a swift exit in less than a year.