State of the Market – Independent sponsors: where LPs are finding alpha today
MODERATOR:
- HILARY LABRASH, MANAGING DIRECTOR AT EVERCORE PRIVATE FUNDS GROUP
PANELISTS:
- SANJAY GUPTA, SENIOR PRINCIPAL AT FORGE SELECT, PART OF THE NEW STATE PLATFORM (CAPITAL PROVIDER)
- DAVID SIMON, FOUNDER, HUDSON GLADE LLC (INDEPENDENT SPONSOR)
- JON FINGER, PARTNER AT MCGUIREWOODS LLP (MARKET EXPERT)
- AMANDA MERIT, MANAGING DIRECTOR AT EVERCORE PRIVATE FUNDS GROUP (LP PERSPECTIVE)
What Is The Independent Sponsor Market?
Hilary LaBrash (“HL”) (Moderator): Jon, your practice at McGuireWoods has been instrumental in both advising and spotlighting this ecosystem. For those who have heard the term but may not know its structure, how would you define the independent sponsor market today?
Jon Finger (“JF”): When I think globally about what makes an independent sponsor, it is essentially someone who wants to execute a transaction but doesn’t have all the equity capital to do it on their own. What’s remarkable is how much this market has evolved – it now takes many different forms. In the early days, people used to joke about the “guy with a deal” or “gal with a deal,” someone raising capital to get one transaction done. Over the past decade, the model has matured dramatically. Today, there are some of the most well-regarded professionals who have left blue-chip private equity firms to work on a deal-by-deal basis – sometimes permanently, sometimes just for one or two transactions before raising a committed fund. There are also operators who have been backed by private equity as CEOs and have decided to go out independently to capture more of the equity upside.
The market’s growth has been extraordinary: when we started our independent sponsor conference eight years ago, we had a couple hundred people in the room; our most recent event drew roughly 1,600 participants – about half sponsors and half capital providers. That continued balance shows how much the opportunity set has expanded. The only challenge is that the market remains difficult to define. Many independent sponsors don’t have a public profile or even a website, so no one truly knows how many there are. But that fragmentation and inefficiency are also part of what make the space so compelling.
Sanjay Gupta (“SG”): That’s exactly right – the fact that it’s still hard to track speaks to its inefficiency, and inefficiency is where alpha is created. As a professional investor, when you see a market that’s opaque and evolving quickly, you see the opportunity to generate excess returns.
HL: Amanda, from your conversations with LPs, how does this fit into the broader evolution of private markets?
Amanda Merit (“AM”): Private markets have become a fundamental part of LP portfolios, and as this allocation has matured, many LPs have seen their portfolio of managers scale and grow out of the lower middle and middle market. LPs must continually rebuild that part of their portfolio, and as a result, independent sponsors have taken on an important role within this ecosystem. It is often where you’ll find the industry’s next generation of top private equity managers. In the emerging fund manager space, we are seeing an increase in high-quality new entrants. As this market gets more competitive, having an independent sponsor track record is becoming a key advantage in fundraising as it derisks potential “first-time team” concerns, demonstrating the ability to source outside of a brand name GP and make key investment decisions together, such as when is the right time to exit this business? Another key factor is differentiation. LPs want to understand why this GP has a right to win amongst the peer set and what it is going to add to their portfolio. Having a few concrete examples of winning over management teams and your value creation approach makes that story far more powerful. These early proof points are why the independent-sponsor universe is attracting increasing institutional attention.
JF: I completely agree. Even though fundraising is tougher today than it was a few years ago, LPs still want early access to what could become the next top-tier fund manager. Many are building those relationships by investing on a deal-by-deal basis to secure exposure to an eventual fund raise early.
Why Is The Market Attractive?
HL: Sanjay, you are building Forge Select as a platform to invest behind the independent sponsor opportunity within New State, an established committed capital sponsor. What is driving enthusiasm for this part of the market?
SG: We view independent sponsors as one of the last true sources of alpha in private equity. Deals tend to be priced more attractively – typically below eight times EBITDA, compared to ten or eleven times or even higher for traditional mid-market buyouts. The alignment is stronger, too. Independent sponsors don’t rely on management fees; they’re generally incentivised instead to generate carried interest. We also see most groups highly specialized, focusing in their power alleys with select industries they know best. Furthermore, independent sponsors that want to raise a commingled fund must demonstrate success in their pre-fund deals. This creates an excellent alignment of interest, where these pre-fund deals can be make-or-break for their trajectory. This segment is effectively the frontier of firm formation. Many of the well-known firms founded in the 1990s and 2000s are led by Partners now approaching retirement, and a new generation of professionals is spinning out to form their own platforms. As that continues, we believe the investable universe will only expand.
AM: An additional trend we’re seeing involves continuation vehicles (“CVs”). As more firms use CVs, mid-level and senior professionals are being asked to roll their carry forward, delaying liquidity. That’s prompting some of them to strike out independently, creating new sponsor groups. It’s an interesting by-product of the current environment.
Why Do Professionals Choose To Be Independent Sponsors?
HL: David, you founded Hudson Glade as an independent sponsor after years at a large, pedigreed private equity firm. Why operate as an independent sponsor instead of launching a traditional fund?
David Simon (“DS”): For many executives spinning out of larger firms, doing a few independent sponsor deals first has become the standard path. It lets you prove you can source and execute transactions outside the structure and support network of a large platform. When I left my prior firm – a $13 billion AUM platform – I had great LP relationships, but many couldn’t invest at the smaller deal sizes I was pursuing. Building a new investor base through these early transactions gives them the chance to see my work firsthand. Independent sponsors are getting out there and meeting a lot of investors in and around the industry, and even if they don’t invest in the deals, those investors are getting more reps looking at that sponsor and will ultimately be able to go back and track the diligence materials and the investment thesis and see how the opportunity develops. If the independent sponsor ultimately goes to fundraise, this should prove productive and efficient for everyone as the LPs can evaluate how you source, manage and exit investments before committing to a long-term fund. It’s also an attractive economic model for sponsors who can bridge the time between exits through monitoring fees or other mechanisms. For the right team, it’s a very rewarding structure.
HL: And what have been the biggest challenges of working this way?
DS: It’s interesting – having a blind pool fund certainly takes out some of the friction on the equity raising side, but it doesn’t make it materially easier for actually getting the transactions done. You still need to do all of the right things to source and then line up lender financing, and there is a lot of capital available to independent sponsors. The main challenge isn’t raising capital – there’s plenty of it. It’s finding the right capital for each deal. Different investors have different appetites for deal size, structure and control. Matching those interests takes time and judgment. In the lower mid-market, where many founders are taking on institutional partners for the first time, alignment and trust matter just as much as pricing.
JF: Exactly. Early on, independent sponsors sometimes had to downplay the fact that they weren’t a fund. That’s no longer the case. Investment bankers now actively bring opportunities to independent sponsors – it’s become a recognised and credible model.
DS: To put a finer point on that, in the three plus years we have been operating, we have probably looked at close to 1,000 deals. I can think of maybe five where they said, “we realise you’re not a funded sponsor, we’re not going to let you in the process.” Most of the time, if you have the right pedigree and can show the strong alignment, it’s actually a selling point with founders. It’s still a personal business that gets done in the lower-middle market, where you’re partnering, in the true sense of the word. And that’s part of the secret sauce of what allows independent sponsors to be successful.
How Do Deals Alongside Independent Sponsors Work?
HL: David, could you walk us through how a typical independent-sponsor deal comes together?
DS: For us, it really starts once we’ve signed a letter of intent (“LOI”). Before spending significant diligence dollars, we engage investors early to gauge appetite. We built the process to be institutional and operate like a regulated entity – building full investment-committee-level materials, managing due diligence and coordinating legal and financial workstreams. We’re disciplined about costs and control the documentation to keep things efficient, but still doing everything LPs would expect from a larger sponsor. The key difference is just that we’re making sure before we start that meter running, for all those diligence and underwriting costs, that the investors are there first. If we see insufficient investor interest, we’ll pause rather than overextend. It’s about running a professional process without a permanent capital pool.
HL: Sanjay, how does New State’s Forge Select platform fit into that process?
SG: Forge Select was built specifically for this space. We’ve worked with independent sponsors at New State for years on a control basis but have seen an increasing opportunity in attractive non-control situations with the elite type of independent sponsors. The reason for creating Forge Select was to plug into more of those non-control opportunities. Our capital is flexible, and we make our operating partners and broader network available as needed. The goal is to be collaborative and value-added to make the process easier, not more complex.
JF: That differentiation is key. There is no shortage of capital, but value-added capital wins. Independent sponsors are typically bandwidth constrained, so the ability to leverage a group like Forge Select that comes with the broader platform, operating partners, all of that, is a huge value-add to independent sponsors. They are looking for capital partners who bring operational insight, speed and credibility – not just a check.
DS: Exactly. On our last deal, we were choosing between New State and one other potential partner to be in a majority position. That decision wasn’t just about pricing; it was about partnership and long-term alignment. Those who bring more than capital – strategic input, relationships, operational expertise – will continue to win.
How To Manage The Lifecycle And Create Value
HL: Once an investment closes, how does the independent-sponsor approach to value creation compare with that of a traditional private-equity firm?
DS: If done right, it should look very similar. Experienced sponsors run the same playbooks on value creation and governance. The real distinction is experience – participation on boards, managing through challenges like executive turnover or legal disputes. Otherwise, there shouldn’t be a difference in what the value creation plan would call for. At Hudson Glade, we have built an Executive Advisory Council of former CEOs who help us accelerate value creation, much like an operating-partner bench would in a traditional fund.
SG: I completely agree. The best sponsors are indistinguishable from established funds in how they operate; the difference is mainly structural, not qualitative.
Market Trends And Institutionalization
HL: As the market matures, what trends are you all seeing?
JF: The word “institutionalization” comes up a lot – and rightly so. We are seeing established independent-sponsor teams that look and operate like mid-market committed private equity firms, with full infrastructure and repeat investors. Deal sizes have increased meaningfully, and we’re seeing more diversity across focus areas outside of traditional industries, such as growth tech and sports. The fundraising is also evolving to a more hybrid approach of repeat partnerships with the same LPs. Then lastly, we’re seeing a coalescence around certain market norms – hurdle-based carry structures, preferred returns and tiered economics. However, the flexibility around each deal’s economics is one of the model’s strengths.
SG: I’d call that progress. As the market standardizes, it becomes more scalable and easier for new capital providers to participate. That scalability, in turn, attracts even more sponsors – a healthy flywheel for the ecosystem.
AM: From the LP perspective, more groups are investing resources into this part of the market. As mentioned, when LP portfolios continue to mature and their existing managers grow, they all face a common issue of needing to replenish at the lower middle market size. As a result, while there is of course competition for LP dollars, there is also competition for allocation in the top-tier emerging funds as well. Many LPs are now tracking and developing capabilities to back independent sponsors, knowing that when these teams raise their first fund, these can get done very quickly and allocations can be scarce. This dynamic doesn’t necessarily change in fund II and III if the fund is performing and existing LPs want to double down and scale, so being able to move with conviction in fund I is becoming increasingly important to access top-tier emerging managers.
LP Access Points And Institutional Allocation
HL: Amanda, how are institutional investors engaging with this market today?
AM: We see two main approaches. Some LPs invest directly alongside independent sponsors on specific transactions, sometimes in a single deal or with a commitment to fund a couple of deals within defined parameters around sector and deal size. That structure provides certainty of capital and repeat partnerships. Others take a “farm-team” approach – cultivating relationships early so they’re ready to back a sponsor’s first fund when the time comes. Large institutions, including public pensions, sometimes access the market indirectly through specialised vehicles that invest exclusively alongside independent sponsors.
SG: Platforms like Forge Select help make this space more investable by pre-vetting sponsors and co-investing alongside them. These platforms help the independent sponsor and new fund formation flywheel spin faster.
Where Does The Market Go Next?
HL: Finally, where do you see this market heading over the next five years?
DS: I expect continued growth. More professionals are pursuing this route as liquidity and capital availability expand. Selfishly, I’d love the space to stay smaller but the momentum is undeniable.
SG: I agree. As legacy firms from the 1990s and 2000s reach transition points, more experienced professionals will spin out to launch their own platforms. This market is poised for explosive growth.
JF: We’re somewhere around the middle innings of this evolution. Competition will be a defining factor among capital providers and among sponsors themselves. I think you’ll see more funds raising capital to back independent sponsors because of that desire across the industry for access to these deals – but it will take time for those firms to build presence in the independent sponsor market. On the independent sponsor side, the continued growth and heightened pedigree and sophistication of the groups being formed will raise the bar and create more competition. I also think we’ll see more co-sponsorships, where one independent sponsor collaborates with another, often to execute larger transactions or otherwise bring in additional expertise.
AM: For LPs, this is still the frontier of private markets where alignment, specialisation and genuine alpha persist.
HL: That’s a great note to end on. The independent sponsor market remains one of the last bastions of alpha: fast-growing and increasingly structured for institutional investors to access. For allocators looking to drive outperformance, this is the frontier to watch.
Biographies
Sanjay Gupta is a Senior Principal at New State Capital Partners and leads the Forge Select strategy after serving as a Senior Advisor to the Firm since 2017. Sanjay has over 20 years of experience in private equity and has deployed over $3 billion across funds, co-investments/directs and secondaries throughout his career. Most recently, he was the Chief Investment Officer and the US CEO at Moonfare. Prior to Moonfare, Sanjay held several leadership positions at well-regarded global private equity platforms, including Global Head of Private Equity at UBP, Head of North America Private Equity Funds at CDPQ and Head of US Private Equity at Adveq (now Schroders Capital). Earlier in his career, he was an investment banker at Lehman Brothers and an Investment Associate at FLAG Capital (now HighVista Private Equity). Sanjay received his M.B.A. from the University of Chicago and undergraduate degree in Economics from George Washington University.
David Simon is a Co-Founder and Managing Director at Hudson Glade. He is responsible for identifying, executing and managing investments and helping to manage the firm. Prior to co-founding Hudson Glade, David worked for nearly 20 years at Littlejohn & Co., a leading middle market private equity firm. For the last 14 years of his tenure with Littlejohn, he served as a Partner, Managing Director and a member of the Investment Committee. While at Littlejohn, David led or played a significant role in many investments, the majority of which were “Good to Great” buyout investments and he served on the Board of Directors of nine portfolio companies, most of which were in consumer-related sectors. Early in his career, David worked as an Analyst at Smith Barney before joining Fenway Partners, where he worked on a variety of consumer investments as an Associate. David earned both a B.Sc. in Economics, magna cum laude, and an M.B.A., with honours, from The Wharton School of the University of Pennsylvania.
Jon W. Finger is a Partner at McGuireWoods. A prolific dealmaker for more than two decades, Jon is known nationally as a go-to strategic adviser for sophisticated private equity transactions. Jon – who leads the Private Equity Industry Team – was instrumental in creating the innovative Independent Sponsor and Emerging Manager programmes, which distinguish McGuire Woods as the preeminent law firm for emerging private investment fund managers. As a leader of one of the first legal practices focused on independent sponsors and emerging managers, Jon has seen the market evolve into a significant segment of the private equity landscape. He has been quoted by The Wall Street Journal and other media outlets on private equity and independent sponsor deal activity. Jon’s practice focuses on private equity and corporate transactions. He represents private equity funds, independent sponsors and venture capital funds in mergers and acquisitions, fund formation, securities offerings and corporate governance initiatives. Chambers USA, Legal 500 United States, The Best Lawyers in America and The Texas Lawbook have all recognised Jon as a leading corporate and private equity lawyer.
Hilary LaBrash is a Managing Director in Evercore’s Private Funds Group. Hilary works as part of the GP Advisory team. She focuses on origination, due diligence and execution of fundraises for third-party managers. Prior to joining Evercore, Hilary was an Associate with Forum Capital Partners, a boutique fund placement and advisory firm based in New York. She began her career as an Analyst at Goldman Sachs within the Asset Management US Third-Party Distribution team. Hilary holds a B.Sc. in Finance and a B.Sc. in Management, International Business Concentration from the University of Illinois at Urbana-Champaign and is a CFA charterholder.
Amanda Merit is a Managing Director in Evercore’s Private Funds Group. Amanda has distribution responsibilities for institutional relationships within the Northeastern and Southern regions of the US and Canada for Evercore’s Private Funds Group. Amanda was selected by Private Equity International (PEI) for its 2023 “40 Under 40: Future Leaders of Private Equity list with a spot in the Fundraisers category. Prior to joining Evercore, Amanda was a Generalist with Candlewood Investment Group, LP, a distressed debt hedge fund, where she supported the Fundraising and Investor Relations team. Amanda holds a B.Sc. in Management and International Business from The New York University Stern School of Business and is a CFA charterholder.
First appeared in, and is reproduced with permission from, Evercore Private Funds Group State of the Market and additional information may be found therein.