Turnstone PE heads for debut fund first close in March

The firm, a spin-out of Norwegian state-backed private equity manager Argentum, expects to hold a first close for the fund in March and plans to stop fundraising for Turnstone Fund I at EUR 100m, Rygg said, adding that the fundraise has “good traction”. “In the current market, I think Fund I will be deployed quite quickly, so we could be back with Fund II within a year’s time,” Rygg added.

The vehicle’s LP base is made up of Norwegian investors, namely family offices and institutions from the team’s network, Rygg said.

Turnstone, a spin-out will seek mature PE opportunities, focusing on LP-led secondaries (with no fund size preference), GP-led deals including stapled opportunities, and niche primary opportunities. The vehicle can also make co-investments and has a preference for the small-cap and mid-market growth and buyout space, Rygg said.

The firm is sector-agnostic, he added, focusing instead on the pricing and performance of the portfolio under consideration, whether the GP has carved out a niche with its strategy, and whether it has a competitive advantage and can produce competitive returns.

The fund will deploy EUR 5m-20m per deal and will build a portfolio of five to 15 investments, with tickets at the smaller end for single assets and at the larger end for LP portfolios.

“The opportunities that we focus on have been abundant since the outbreak of Covid and are continuing full force,” Rygg said. “In addition to LP-led secondaries, we also see more primary commitments with stapled secondaries, plus continuation funds and annex funds.”

Market opportunities

Many GPs are taking longer to raise their funds in the current market, as reported. This situation generates opportunities for Turnstone, given its focus on late primary fund investments. “We’re seeing fundraises where managers have a plan for the cornerstone funding for their first deals, then they will go broader,” Rygg said. “We’re also seeing fundraises taking longer than before, which offers more visibility on the deals. And in this market, spending a lot of time fundraising is not necessarily an indication of quality.”

The GP plans to have a proper blind pool allocation for its next fund, Rygg said, meaning that it can fundraise with less visibility on underlying assets. “But for Fund I, we want to show early traction in our own portfolio, so we have a preference for maturity,” he said. “Understanding where the final fund size will end up regardless of target will be important when assessing primary funds.”

The firm has seen more than 100 opportunities to date in 2023 and expects to see 300-500 opportunities per year, Rygg said. “We have worked out that there are over 1,000 funds and around 500 GPs in our remit and we have been proactive in sourcing, but we will be highly selective,” he said.

The firm has not yet determined what portion of the fund will be dedicated to emerging versus existing managers, he added, given that this will depend on the merits of each deal. “It’s an extremely interesting time for spin out teams in particular, who tend to be at the smaller end of the market for their debut funds,” he said. “The market has become very dynamic with many new niche strategies. A lot of people are taking the experience that they have from the large- and mid-cap space and applying that toolkit locally.”

Team effort

Turnstone Private Equity was formed by a six-strong team of ex-Argentum PE professionals. Rygg headed the firm’s secondaries strategy for 13 years prior to his departure, while Turnstone senior partner, chairman and CIO Joachim Høegh-Krohn was Argentum’s CEO for 17 years before his departure in mid-2022. Partner and CFO Henning Fredriksen spent 15 years with Argentum, where he led its co-investment team. The team also comprises investment directors Oda Elisabeth Knudsen and Stefan Vikøyr, as well as investment manager Henrik Finsrud, all of whom previously worked at Argentum.

“The six of us came together in January, and the common desire for all of us was to build a franchise of our own outside state ownership with the freedom to pursue like-minded investors and opportunities. The key thing for us was being in the same boat as our investors, which was lacking in where we came from originally.”

ESG has been another key consideration for the new firm, with Turnstone’s debut fund an Article 8 vehicle under the EU SFDR, Rygg said. This classification means that the firm will put in place restrictions on investing, as well as being required to undertake ESG reporting on its investments.

This will involve asking its GPs for reporting questionnaires and undertaking ESG screenings on the way into an investment for the portfolio, taking into account the companies and GPs involved, he said.

“We’ve done this previously and it’s fully possible to do this as a fund-of-funds, but the ability to influence the GP’s own practices is of course dependent on the type of investment – it’s quite limited if you acquire a tail-end LP portfolio as it’s limited to an annual survey and your own screening on the way in,” Rygg said. “But when you commit to a new vehicle, you can have a side letter in place and outline your own requirements.”

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