Silver Lake, the technology-focused private equity group behind Dell and Endeavor, has launched its largest fund yet as it shifts its focus back to large acquisitions and halts the smaller bets it says have backfired in recent years.
The US-based group has raised $20.5 billion for its seventh private equity fund. That exceeds the $20 billion raised for a fund in 2021 and bucks the trend of shrinking fund sizes among large private capital groups as pension funds have reduced 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 finding their largest investments were performing best, while smaller minority investments had performed poorly during the pandemic.
“We do best when we invest at scale,” Mondre said. “The return is much higher when the stakes are larger.”
“We are simplifying our investment strategy, cleaning up our calendars and refocusing the team on the things that matter most,” Durban added.
Silver Lake, which holds its annual meeting on Wednesday, has internally referred to its string of smaller, pandemic-era tech deals as “the zone of regret.” The subsequent rise in interest rates depressed valuations and caused profits to evaporate at tech companies like Unity Software.
“In 2021, we made a number of smaller, passive minority growth investments. We were very active. Today, these assets represent only about 3 percent of the net asset value in our portfolio and we have eliminated smaller, minority passive growth investments,” Durban said.
Silver Lake’s shift in stance comes amid a boom in activity that has seen the company return huge profits to investors from successful major acquisitions such as the VMware and Dell acquisitions and become one of the most active private equity investors.
Since the start of 2023, Silver Lake has entered into deals to sell investments worth $20 billion, including its stake in VMware. Broadcom bought the cloud computing specialist last year, netting Silver Lake investors more than $7 billion in profits, according to FT calculations.
The deal has helped the company achieve an average annual net return after fees of 21 percent for its funds since 2009, Silver Lake told investors on Wednesday, supported by asset sales and gains from recent investments.
Durban and Mondre decided in late 2022 that falling technology valuations were a good time for large acquisitions. Since then, Silver Lake has signed deals to acquire private US software group Qualtrics, German technology pioneer Software AG and sports and talent agency Endeavor. The average capital investment in seven of these deals was $3.5 billion.
Major Silver Lake investors who spoke to the Financial Times supported the changes.
“[We] Maybe we’re in one of those times where the big tech companies that can do big things will be the winners,” said Mary Callahan Erdoes, managing director of wealth and wealth management at JPMorgan Chase, one of Silver Lake’s biggest backers. “We believe Silver Lake will help us identify these companies.”
“At some point in 2022 they realized they were getting distracted from where they were best,” said another major investor, who welcomed the group’s appetite for “big, compelling bets with high complexity.”
“The investments in 2023 were largely the result of initial investments in previous years and allowed us to intervene with large, creative deals when markets presented great opportunities,” Durban said.
Both Durban and Mondre said a rally in technology stocks since October had left much of the market “completely to overvalued.” Even as they keep an eye on remaining buying opportunities, they predicted that Silver Lake would actively work to sell non-core assets to recoup cash.
Since acquiring Dell in 2013 alongside the PC company’s billionaire founder Michael Dell, Silver Lake has become a go-to investor for technology executives looking to reposition their companies.
Under Durban’s leadership, Dell fended off an activist approach from Carl Icahn and orchestrated the $67 billion takeover of technology giant EMC in 2016. The transaction has become a landmark private equity deal of the post-crisis era, generating over $70 billion in profits.
In an interview with the FT, Dell called Durban “the hero of the story” of its takeover and pointed out how little new equity was required for the deal. “How do we buy a $67 billion company with only $4 billion in new capital? This is probably something that very few people would have figured out and been able to implement,” he said.
The deal put Silver Lake at the forefront of technology management acquisitions. “When you have big transition moments like this with CEOs, you very rarely get to throw punches,” Erdoes said. “You want to be that call. Now Silver Lake gets that call.”
Silver Lake’s acquisitions can begin with the company taking a small position years before.
“When you see that we are in the minority on a scale, we come in to help the management team solve a problem. But a full takeover makes no sense,” Durban said. “If the market is upside down, we may see an opportunity to pay for control.
“We are selling something seductive to a management team,” he added. “How do you build and grow a great company?”
Silver Lake is now looking to capitalize on opportunities from breakthroughs in artificial intelligence and investing in the “tip and shovel” of AI infrastructure, but avoiding bets on startups developing large language models.
Mondre recently led Silver Lake’s $6.4 billion equity investment in Vantage Data Centers, a company that manages real estate where tech companies store AI data.
Silver Lake also maintains its approximately $10 billion stake in Dell. “We expect it to be a big beneficiary of the new AI tailwinds,” Durban said.