Grove Street focuses on the “harder to access” segments of the market, including small and mid-market buyout (including special situations), growth equity and venture capital funds. We invest with experienced managers in both new/emerging groups as well as teams that have proven their capabilities over cycles.
Grove Street currently invests predominantly with fund managers in the U.S., Western Europe, Israel and China.
Grove Street invests in funds through primary or secondary transactions.
In general, Grove Street seeks to achieve strong terminal IRRs by focusing on strong terminal cash-on-cash multiples. We believe we best generate those by focusing on managers that have specific strategies to improve fundamental enterprise value in the companies in which they invest, particularly through operational improvements. We believe that in the buyout sector the opportunity to achieve returns through financial engineering (i.e. leverage) will vary with cycles and is reflected in underlying asset prices. We look for teams who are able to generate meaningful multiples on investment by applying their skills and experience to improve the operating performance of a company in a significant way. We find that this focus provides lower susceptibility to credit cycles and earnings growth that is more insulated from economic cycles.
Research suggests that prior performance, relative to industry vintage year comparisons, has historically been a much better (though hardly perfect) predictor for future relative performance in private equity than in the other major asset classes. As a result, Grove Street searches for private equity teams that have been able to generate consistently strong returns. We analyze the contribution to the track record of each individual and the position and compensation level of those individuals, as well as their involvement going forward. Grove Street also pays attention to the strategies that produced the past performance and makes an assessment whether this approach will continue to be appropriate in the expected future environment.
Grove Street carefully evaluates the capacity and manpower relative to fund size, and the match of a team’s skill sets and resources to their proposed strategy for adding value. We find that the success of every private equity firm is dependent on a relatively small number of highly talented individuals. Over time, team performance will change as individuals develop, as their personal motivations or interests change, and as they retire. We therefore also evaluate the motivation, incentives and career cycle of the key persons and the next generation in each team.
We look for:
- Superior demonstrated performance in specific sectors or strategies with some preference for funds focused on a few industries over broad generalists.
- A quantifiable and verifiable history of improving operating performance of the companies exhibited by growth significantly in excess of GDP and supported by operational resources supplied by the GP.
- Demonstrated ability to recruit and retain strong management teams and when necessary a willingness to make timely and decisive changes to management or the strategic direction of the company.
- A history of purchasing companies wisely and not overpaying.
- For buyouts, evidence that the GP manages debt loads wisely, with the operating strategy defining the appropriate leverage.