Investment Strategy

The Strategic Partners private equity funds mainly provide capital to emerging growth public companies with market capitalizations under $300 million. Information imbalances and other structural inefficiencies often exist in the sub-$300 million capitalization market, making it an attractive area for negotiated private equity deals. These structural inefficiencies include:

1. A lack of institutional research, advisory and market-making services to companies with relatively small market capitalizations.
2. A lack of institutional investor interest in micro-cap public companies.
3. A lack of financing alternatives for micro-cap companies and a reduction of interest from traditional buyers of secondary offerings

These inefficiencies result in lower valuations relative to large cap companies despite high, attractive growth rates. This void in institutional research among small companies has been compounded by the changes in Wall Street investment banking and research functions. With the bifurcation of research and banking, trading revenues will now subsidize the research function. As a result, institutions will now gravitate even further towards liquidity and trading volume, in order to subsidize research. This gap will only widen creating large opportunities for small company investors.

Through the structuring and negotiating of direct private equity investments, the Strategic Partners funds are able to take advantage of these inefficiencies while minimizing downside risk. More specifically, the funds utilize securities that have a senior position vis-à-vis common shares, provide redemption features and generate current income.