Abu Dhabi fund to invest $2 billion in Silver Lake

Abu Dhabi sovereign wealth fund Mubadala Investment is making an investment in Silver Lake and contributing $2bn to help the technology-focused private equity firm launch a new long-term strategy, according to people familiar with the matter.

Mubadala will take a stake of less than 5% in Silver Lake, buying roughly half of what Neuberger Berman’s Dyal Capital Partners purchased in 2016, the people said.

Under the new strategy, Silver Lake will have 25 years to deploy the capital and harvest any gains, allowing it to hold assets for much longer than the typical 10-year buyout-fund time horizon.

It couldn’t be learned what Mubadala is paying for the stake, what it values Silver Lake at or how much in total the firm intends to raise for the new strategy.

The twin investments represent a vote of confidence that will give a boost to a big expansion that is under way at Silver Lake as the firm seeks to capitalise on a surge in interest in tech investments. It has been one of the most active investors since the coronavirus pandemic began, striking billions of dollars worth of deals with companies including Twitter, Airbnb and Expedia.

Silver Lake is separately close to completing fundraising on a new flagship fund and had collected more than $18bn for that vehicle as of 14 August, according to a regulatory filing then. It is replacing a $15bn pool raised in 2017. The Mubadala-backed strategy initially will co-invest alongside the flagship fund to build up a portfolio of investments but also will be able to do its own deals, the people said.

The new business line will offer Silver Lake a broad mandate to invest in debt and equity and across various geographies and industries, the people said. It may make investments in fast-growing upstarts or do traditional leveraged buyouts of more mature companies.

With headquarters in California, and New York and more than $60bn in assets under management already, Silver Lake has a longstanding playbook of taking large stakes in technology and media companies including computer-maker Dell Technologies and entertainment firm Endeavor Group and working closely with their founders or management to help spur growth.

There has been a broader industry shift in favor of what is called perpetual capital—pools of money that firms don’t need to constantly refresh at great effort and expense. At 25 years, the new strategy could last for the entire remaining investment career of Silver Lake’s new co-chief executives, Egon Durban and Greg Mondre, both in their mid-40s.

Private equity rivals including Blackstone, Carlyle and CVC Capital Partners also have been developing long-term strategies, although most of those funds have a lifespan of around 15 years. They tend to pay up for businesses that are stable and have steady cash flows and aren’t fixer-uppers, giving them annualised return expectations of 12% to 15% versus the 20%-plus touted by traditional buyout funds.

Silver Lake’s 2013 flagship fund—the most recent vehicle with meaningful performance data—had returns net of fees of 23% as of March, according to public pension-fund records. The firm isn’t lowering its return expectations for the new strategy, according to people familiar with the matter.

For Mubadala, which manages $232bn, the partnership with Silver Lake may represent a strategic shift for its technology investments. Mubadala was a key backer of SoftBank’s Vision Fund, committing $15bn to the $100bn vehicle. But it privately has complained about the high valuations at which SoftBank made its investments and subsequent losses in the fund.

Mubadala’s relationship with Silver Lake dates back years. The sovereign-wealth fund invested in William Morris Endeavor Entertainment in 2012, the same year Silver Lake took a stake in the company. In 2013, Mubadala said it was investing alongside the private equity firm in WME’s acquisition of IMG Worldwide, forming what is now known as Endeavor.

In 2019, Silver Lake invested $500m for a minority stake in City Football Group, the owner of soccer clubs including the English Premier League’s Manchester City. Durban joined the board of the company, which is chaired by Mubadala CEO Khaldoon Al Mubarak.

Mubadala also participated in the $2.25bn funding round for Alphabet’s self-driving car unit Waymo that Silver Lake led in March, as well as in the firm’s subsequent investment in Indian tech-and-telecom giant Jio Platforms.

Source: Wall Street Journal

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