Counter-intuitively, the independent sponsor model is particularly suited to cyclical industries, such as construction.
My initial thinking was that an independent sponsor would have a really hard time raising capital for a cyclical deal, whereas a PE fund has more discretion as to where they deploy capital, which would enable them to stray farther from the fairway (such as into cyclical targets). All of that is true.
However, it is also true that a fund's timeline is much stricter than that of an independent sponsor. A fund needs to exit within a certain window, and this isn't compatible with highly cyclical industries. On the flipside, a sponsor who raises capital on a deal-by-deal basis can specify upfront that the exit timeframe (and uncertainty) will depend on macro conditions, taking advantage of the model's more customized and flexible approach.
Check today's new episode of the Minds Capital Podcast (YouTube, Spotify, Apple Podcast) with Ben Hughes.
