Female Private Equity Fund Manager Finds A White Space
In search of higher returns and relatively stable investments, high-net-worth individuals (HNWI) are allocating more to alternative investments, such as private equity, writes Chris Cumming in The Wall Street Journal. For those who can accept a potentially greater level of risk, alternatives that have low or no correlation to public markets also provide portfolio diversification.
"I like non-correlated assets," said Kelly Ann Winget, founder of Alternative Wealth Partners (AWP). Her private equity firm’s fund offers diversification across five industries with a single investment. "I'm a contrarian investor."
It will come as no surprise that a millennial woman with a 10-year track record of raising $1 billion for others—$100,0000 at a time from HNWI—is finding it harder raising her first fund compared with men and even women who left big-name firms such as Blackstone and Goldman Sachs to start their own funds.
The companies and assets that AWP invests in aren't pre-IPO opportunities. These companies are acquired before the public ever knows about them. "We're in between angel and venture capital," said Winget. "Typically, a bank or private equity company provides this kind of financing. But, in my experience, private equity can be pretty predatory to a business owner." This iswhite space, where a fund might have room to maneuver in a crowded playing field.
Whether a company needs debt, equity, or even a royalty structure, AWP will finance them in industries that banks often don't lend to, such as oil and gas or ammunition companies.
- "The oil and gas market hasn't been invested in for 10 years," said Winget. "They [government and consumers] want oil and gas companies to start producing more, but nobody is providing financing to these companies." Winget is the fifth generation in her family to be in the oil and gas space. At birth, she started being groomed to be the industry.
- "We're invested in an ammunition manufacturer," said Winget. "When the U.S. provides foreign aid, like supporting the war in Ukraine, the government has to buy American-made first." There's not much competition in the industry. The three major companies that compete use 100-year-old equipment. "Manufacturing processes need to be brought into the 21st century. I like investing in anything to do with bringing our infrastructure into modern times," Winget said.
"These companies are starving for capital," said Winget. With one investment in AWP's first fund, money is spread over 20 different investments. "We're like a mutual fund of alternatives. I didn't understand why there wasn't a fund invested in private equity, energy, consumer goods, and real estate."
Female fund managers have a markedly harder time raising capital from institutional investors than their male counterparts. As a result, they rely much more on HNWI when raising their first funds. Interesting, wealthy women's investing style is different from their male counterparts. Women are more likely than men to invest for the long haul and spread risk by buying diversified funds instead of individual stocks, according to How Women (and Men) Invest in Startups*. These tendencies make them prime prospects to invest in small funds managed by women.
For the first fund, Winget is raising a $50 million fund. "We are launching two new funds and those are going to be $500 million apiece," she said. "This is a huge undertaking. We already have the assets allocated for those larger funds because we've already unearthed incredible deal flow in the alternative space."
"The assets we're invested in don't go up and down the same way that the market does," said Winget. They are non-correlated. AWP's sweet spot is companies generating $3 to $10 million a year that typically need $1 million to ramp production up to $10, $15, or $20 million per year. Unless a company's margins are tiny, once they are $10 million in size, they are already working with a bank or a private equity company on financing.
Most private equity companies are investing a minimum of $25 million. The deals AWP targets are too small for most private equity companies. It is not just companies in which AWP invests. It is not uncommon for AWP to own real estate or oil and gas wells.
"Most PE firms find it hard to source deals, especially when we're talking about returns over 20%, 30%, 40% a year," said Winget. "I already identified all of the assets we would allocate capital to," said Winget.
To find investors (limited partners-LPs), "I partner with a lot of estate attorneys and CPAs because there is a tax strategy to what we do," said Winget. "Anyone interested in getting creative with their tax, retirement, or estate planning, investing in alternatives can be a good choice," said Winget. "We make sure that we buy it in the most tax efficient way possible and pass those tax benefits on to the LPs in our fund."
"We remove a lot of the middlemen," said Winget. "We're not paying brokerage fees and we're not paying acquisition fees."
Like women raising their first venture capital fund, fundraising is Winget's greatest challenge. "I'm competing with managers with funds which are much larger than mine. They are perceived to be more experienced and successful. I've worked on almost 200 different types of funds, but this is the first I've done as a manager myself."
Lacking an established "traditional" track record is a barrier. "So I might only be 32 years old, but the people I work with in oil and gas, manufacturing, and real estate have been doing it for 30 years. So I'm leveraging their deal-making expertise to create a win-win for both the company and the investors in the fund."
"I've made an effort to make sure that we have representation on every level so that when people look at our company, they see somebody that looks like them and feel comfortable working with our team," said Winget. "We're targeting investors historically excluded from alternatives, including private equity. Our LPs are not 75-year-old, white men." She wants to grow generational wealth for people who haven't had access to this type of investment opportunity.