Triago expands primary directs strategy to Europe

“Our directs division took off in the US in 2019,” Swain said. “Before this, dealflow was relatively lumpy with around two or three deals happening per year, but we began growing at around 800% at this time. We knew that we could create a practice to focus on this area in Europe. We want to double down on those efforts and the best way to do this is to build up a team here.”

Swain joined Triago in 2019, progressing from associate to global CEO over two and a half years. In addition to Swain, Triago team members working on the development of the Directs strategy include US-based partners Sim Ketchum and Pete Purcell, as well as vice president Tom Kenary.

In Europe, Triago team members working on the strategy include London-based principal Adeolu Adesola, and Paris-based principals Hugo Chalmin and Arthur Uriot.

The firm has worked on 15 primary direct deals to date from the start of 2021, three of which have involved a European-based company or a European fundless sponsor, according to a statement. The three European deals have a combined enterprise value of more than USD 1.4 bn.

LP appetite
Currently, 90% of Triago’s directs client base comes from referrals, Swain said. Building out the strategy in Europe will involve helping US clients to tap European capital, as well as doing European deals for European clients, he added.

Triago sees room for the expansion of the strategy in Europe given that this market for direct deals is not as developed here as it is in the US. “LP appetite has been predominantly for funds, but LPs are trying to get closer to assets, which is a trend that started in the US five years ago and is slowly working its way into Europe,” he told Unquote. “The UK is probably the next to follow, then it will be Europe more broadly.”

The growth in LP interest in direct deals is linked to the increasing maturity of LP structures. “As LPs become more sophisticated, they naturally want to do something more differentiated to deliver alpha,” Swain said. “We’re seeing more funds-of-funds in this space, as well as specialised groups like Ocean Avenue in the US.”

Direct deals also have their advantages for GPs. “Capital raises on directs tend to be quicker than for primary funds,” Swain said. “Depending on the level of demand for particular deals, GPs can also get super-carry.”

Shifting perceptions
The perception of sponsors raising capital in a direct structure, as opposed to via an institutional fund, has changed over the past years, Swain noted. “In the not too distant future, I would expect dealflow in Europe to be split 50:50 between managers with funds versus deal-by-deal sponsors,” he said. “In Europe, if you are a deal-by-deal sponsor, people have tended to think less of you and think you have not been able to raise a fund. But performance doesn’t bear that out and increasingly existing GPs want special holding times for different assets.”

Swain argues that the changing perception of direct deals has much in common with that of GP-led secondaries. “You can draw a lot of parallels between this market and the GP-led secondaries market,” he said. “Think of it as a GP-led on the primary side: it’s usually a star asset and the GP is forced to put a sizeable amount of their own money into the deal to convince investors that there is alignment – we see GP commitments of 5-20 percent. It requires a sophisticated group of investors to do these deals, and some LPs don’t have the underwriting capability or the resources, but we are seeing more and more folks hiring teams internally to underwrite directs.”

However, Swain cautions against comparisons between direct deals and co-investments. “The structure of a direct deal is not the same as a co-investment,” he told Unquote. “A co-investment is not syndicated, and in a direct, you create your own SPV, with no piece of this being taken by any fund. Plus the group of professionals creating an SPV will usually take day-to-day roles managing the investment, often embedding themselves in the company.”

Triago has offices in New York, London, Paris, Dubai and San Diego. In addition to the directs team’s expansion to Europe, Triago’s team will be bolstered by new hire Julian Becker, who joins the firm from Morgan Stanley as a principal and will be initially based in the firm’s Paris office. Becker will focus on primary and secondary market capital raising in the DACH region.

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