Capital Provider to Independent Sponsor Spotlight: Chris Anderson of TIFF Investment Management

May 22, 2024

The interview below is part of a series from McGuireWoods featuring impressive professionals in the independent sponsor space, as part of our ongoing commitment to the independent sponsor community. To recommend an independent sponsor for a future interview, email Jon Finger at [email protected].

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Q: Why did you decide to become a capital provider to independent sponsors?

Chris Anderson: TIFF delivers outsourced chief investment officer and private markets solutions. As tenured, experienced investors in private markets for the past 25 years, TIFF has a long history of investing in the lower-middle market as limited partners and as a co-investor alongside our managers.

As a result, we have been active partners to emerging, first-time fund managers in the lower-middle market for control buyouts and growth equity funds for years. We believe that our team has a distinct set of complementary, seasoned skillsets in direct company underwriting and analysis and manager selection, and has been investing directly in companies alongside our managers since 2011. Around 2014, we realized that we could focus our attention and these skills on a new set of emerging managers — independent sponsors — to increase the size of our direct deal funnel and give us access to a differentiated market for deal flow that we were missing entirely. This became a way for TIFF to meet and assess “pre-fund sponsors,” or independent sponsors that may raise a dedicated fund someday.

As a well-known institutional investor in the market, this also gave us a distinguished perch as a partner of choice for independent sponsors in their journey of building their business. It has become quite an important aspect of our private equity strategy, and we are just as excited to meet new independent sponsors today as we were over a decade ago.

Q: How long have you been operating as a capital provider to independent sponsors, and how long did it take you to get your first deal closed?

CA: TIFF initially dipped its toe into the independent sponsor waters as a capital provider about 10 years ago. Since day one, we’ve been careful to conduct timely, yet detailed due diligence on the transaction that’s presented to us, but we have also always incorporated a thorough assessment of the sponsor themselves through our experienced manager selection lens.

This approach also has proven valuable to the sponsors as we endeavor to provide thorough and candid feedback to help them improve their process, how to think about building a team or by connecting them to other sponsors, investors and intermediaries that have partnered with TIFF in the past.

As valuable as these relationships and deal flow are to TIFF, we also want to make the time spent with us valuable and helpful to the sponsor. The time we take to close a deal may not accurately represent the time we invest in the relationship with each sponsor we choose to back.

Q: What are some of the most impactful reasons you think the independent sponsor model has grown so robustly, and what changes do you envision in the future?

CA: There are many reasons that contribute to this growth. The return potential of independent sponsor-led transactions is no longer a secret. Strong alpha generation is alive and well in this market, while it’s increasingly challenging up-market. Of course, performance is not guaranteed, and independent sponsor-led transactions may lose money or be unsuccessful.

Independent sponsors tend to seek out and find differentiated, bilateral deal opportunities or transactions that come from far less efficiently run processes. We tend to see clear, repeatable value pricing coming from this market.

The alignment of interests between sponsor and capital provider can be unmistakably strong. Deal terms typically can be negotiated for every transaction. They can align investors and sponsors in ways that other private equity structures cannot. Terms for economic incentives obviously take center stage here, but investors can also negotiate some control provisions and governance rights in some scenarios. Sponsors are also not “on the clock” like fund managers are and can afford to be incredibly selective.

Independent sponsor deal opportunities often provide greater transparency and engagement for investors. Sophisticated investors and capital providers today increasingly favor flexibility and customization for their own portfolios. Working deal by deal with independent sponsors provides the benefit of choice and avoids or minimizes blind pool risks.

There is currently a new, enthusiastic and very entrepreneurial generation of investors out in the world hanging their own shingle. For those who wish to eventually launch a dedicated fund management business, the price of entry has risen dramatically, and we see “pre-fund” track records becoming table stakes before launching a blind pool fundraise. Partnering with the right capital providers can help increase your chances of success, should this be the light at the end of your tunnel.

Q: What are the most common misperceptions about the independent sponsor model and capital providers to these sponsors?

CA: There are many things that are misunderstood about this model. One is the perceived mixed quality of a deal or of the sponsor. We think this is entirely misplaced. The pedigree of many sponsors today is quite impressive. You can find some experienced investors in this segment of the market who were trained by some of the most successful private equity firms and institutions in the world today.

Another misperception is that companies sourced by independent sponsors are of lesser or mixed quality. We believe this is also false. Many founders and sellers of businesses are more relationship-oriented and are careful in selecting their investors. Sponsors that we have backed have become trusted investors and partners to some incredibly impressive, generational businesses that we can only describe as hidden gems. We’re excited to have been a part of the story for many of these impressive companies.

Some misperceptions about capital providers include the belief that all of the capital for these opportunities is provided by family offices, small business investment companies, insurance companies or larger private equity firms. TIFF is proof that this is not accurate. It is true that institutions like us remain the minority of capital geared towards independent sponsor-led transactions today, but we see this evolving as there are a small but growing handful of institutional limited partner peers showing up to assess and close deals with independent sponsors every year. We believe the flavors of different types and sizes of capital providers is broadening rapidly.

Q: Recognizing every deal is different, what are some of the most important considerations for you when choosing an independent sponsor for a deal?

CA: There are many factors that help inform us about who to take on as an independent sponsor partner. For starters, we prefer to engage and invest with those sponsors who have some referenceable investment training and evidence of career progression in their craft. Further, we like to see opportunities where the target or the deal situation is a natural match for the sponsor’s previous experiences.

Our advice to sponsors, in a world where there is increasing choice of capital providers actively looking for deal flow, is to partner with investors who have demonstrated responsiveness and a repeated cadence of closing deals; who take a relationship-oriented approach to partnering with you; and that are available to help you in a variety of ways.

About Chris Anderson

Chris Anderson joined TIFF Investment Management in 2015 as a senior member of the private markets team. He helps manage all aspects of the private equity and venture capital portfolio, focusing globally on origination of primary fund investments and private equity-direct investments with specialist fund managers and independent sponsors, as well as secondary investments. Anderson also collaborates with TIFF’s member strategy team, helping investors with their efforts to construct a high-quality, long-term private markets portfolio. As a longtime supporter of education and entrepreneurship, Anderson serves on the investment committee for the Babson College endowment and is chair of the college’s private equity committee.

Anderson began his career as an engineer after graduating from the U.S. Merchant Marine Academy, where he also raced on the intercollegiate sailing team and was commissioned as an officer in the U.S. Naval Reserve. He pursued an MBA at Babson College, after which he started his private equity career with SVG Advisers, a global private equity fund of funds. Anderson later joined Alcatel-Lucent Investment Management Corp., which oversees $30 billion in pension assets, where he spent six years managing the private equity portfolio prior to joining TIFF.