Silver Lake targets ‘bigger bets’ as it raises its largest fund

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Silver Lake, the technology-focused private equity group behind Dell and Endeavor, has raised its largest fund to date as it shifts its focus back to big takeovers and halts the smaller-sized bets it believes have backfired in recent years.

The US-based group has raised $20.5bn for its seventh private equity fund. That tops the $20bn it raised for a fund in 2021 and bucks a trend of shrinking fund sizes at large private capital groups as pension funds cut their exposure to unlisted assets.

Co-chief executives Egon Durban and Greg Mondre told the Financial Times they were repositioning Silver Lake’s portfolio after observing that their largest investments were performing best, while smaller minority investments made during the pandemic had performed poorly.

“We are at our best when we are investing at scale,” said Mondre. “The returns are substantially higher when the bets are bigger.”

“We are simplifying our investment strategy, cleaning up our calendars and refocusing the team entirely on the key things that matter,” added Durban.

Silver Lake, which holds its annual meeting on Wednesday, has internally dubbed its array of smaller, pandemic-era tech deals as “the regret zone”. The ensuing surge in interest rates cut valuations and caused gains in technology groups such as Unity Software to evaporate.

“In 2021 we made a number of subscale, passive, minority growth investments. We were very active. Today, those assets represent only around 3 per cent of the net asset value in our portfolio and we’ve eliminated subscale, passive, minority growth investing,” said Durban.

Silver Lake’s change in posture comes amid a surge in activity in which it has returned enormous profits to investors from successful large buyouts, such as the takeovers of VMware and Dell, and emerged as one of private equity’s most active investors.

Mary Callahan Erdoes
Mary Callahan Erdoes, head of asset and wealth management at JPMorgan Chase, is looking to Silver Lake to help it identify tech company ‘winners’ © Denis Balibouse/Reuters

Since early 2023, Silver Lake has struck deals to sell down $20bn in investments, including its stake in VMware. Broadcom bought the cloud computing specialist last year, yielding a $7bn-plus profit for Silver Lake investors according to the FT’s calculations.

Helped by that deal, it has averaged a 21 per cent annual net return after fees on its funds since 2009, Silver Lake will tell investors on Wednesday, bolstered by asset sales and gains on recent investments.

Durban and Mondre decided in late 2022 that falling technology valuations made it a good time to pursue large takeovers. Since then, Silver Lake has agreed deals to take private US software group Qualtrics, German technology pioneer Software AG and sports and talent agency Endeavor. Its average equity investment across seven such deals was $3.5bn.

Large Silver Lake investors who spoke to the FT encouraged the changes.

“[We] might be in one of those time periods where the large tech companies that can do big things are going to be the winners,” said Mary Callahan Erdoes, chief executive of asset and wealth management at JPMorgan Chase, one of Silver Lake’s largest backers. “Our belief is that Silver Lake is going to help us identify those companies.”

“At some point in 2022 they realised they were distracted from where they are best,” said another large investor, who welcomed the group’s appetite for “large high-conviction bets with high complexity”.

“The investments in 2023 were largely a result of planting initial investments in previous years, and it allowed us to step in with big, creative deals when markets presented big opportunities,” said Durban.

Both Durban and Mondre said a rally in technology stocks since October had caused much of the market to be “fully priced to overvalued”. Even as they eye remaining buying opportunities, they predicted that Silver Lake would be active in selling non-core assets to return cash.

Since its takeover of Dell in 2013 alongside the personal computer company’s billionaire founder Michael Dell, Silver Lake has emerged as a favoured investor for tech executives seeking to reposition their companies.

Michael Dell
Dell founder Michael Dell said few other firms could have helped him buy EMC for $67bn with just $4bn in new capital © Matthew Busch/Bloomberg

With Durban’s guidance, Dell fended off an activist approach by Carl Icahn and orchestrated the $67bn takeover of tech conglomerate EMC in 2016. The transaction has become a seminal private equity deal of the post-crisis era, generating more than $70bn in gains.

In an interview with the FT, Dell called Durban “the hero of the story” of his buyout, noting how little new equity the deal required. “How do we buy a $67bn company with just $4bn in new capital? That is probably something that very few people would have figured out and been able to execute,” he said.

The deal has positioned Silver Lake at the forefront of technology management buyouts. “You get very few times at bat with these types of big transitional moments with CEOs,” said Erdoes. “You want to be that call. Now, Silver Lake gets that call.”

Silver Lake’s takeovers can start with it taking a small position years earlier.

“When you see us end up in a scale minority position, we are coming in to help the management team solve a problem. but it doesn’t make sense to do a full buyout,” said Durban. “When the market is upside-down, that’s when we may see the ability to pay for control.

“We are selling something seductive to a management team,” he added. “How do you build and grow a great business?”

Silver Lake is now looking to capture opportunities from artificial intelligence breakthroughs, investing in the “picks and shovels” of AI infrastructure but avoiding bets on start-ups developing large language models.

Mondre recently led Silver Lake’s $6.4bn equity investment in Vantage Data Centers, which manages properties where tech groups store AI data.

Silver Lake is also maintaining its roughly $10bn holding in Dell. “We expect it will be a massive beneficiary of the new AI tailwinds,” said Durban.

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