JW Levin will create a separate fund for each private equity deal, according to a regulatory filing. Gates has the right to provide as much as 50 percent of the capital for each transaction, while Kirsh and Jesselson can contribute up to 25 percent each. If the investors don’t provide all the money for a deal, JW Levin can raise the rest from third parties.
The structure that JW Levin is using, commonly known as a pledge fund, has mainly been employed by money managers that don’t have an established track record, said Jeff Levi, a principal at Casey Quirk by Deloitte, a consultant on business strategy. While this framework benefits investors, it’s less attractive to buyout firms, particularly as a primary means of raising capital.
“It results in lower fees and it creates a huge uncertainty around having capital to pay for deals,” Levi said.
Most private equity firms require investors to commit a set amount of capital. The investors pay an annual management fee of up to 2 percent until the money is invested, which can take as long as seven or eight years. And fund investors have no voice on deals. Gates and the families won’t face those issues.
“I have to admit, it’s kind of unique,” Levin said.
This article was provided by Bloomberg News.