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Singaporean sovereign wealth fund GIC, one of the world’s most influential investors, sold its stake in a Vista Equity Partners fund after the buyout firm’s founder was embroiled in a tax scandal, according to people familiar with the matter.
GIC disposed of its holding of roughly $300mn at a discount, leaving the Singaporean fund with a loss on its investment, the people said.
It is rare for an investor to sell a stake in a buyout fund for reputational reasons, underlining the challenge facing Vista as it now tries to draw a line under a scandal that saw its billionaire founder Robert Smith agree a $140mn settlement in 2020 with US authorities to resolve a criminal tax investigation.
Smith admitted to his involvement in a tax scheme that allowed him to evade paying millions of dollars in taxes. Several of Vista’s senior dealmakers, including Brian Sheth and Alan Kline, left following the settlement. Sheth quit a month after Smith entered a non-prosecution agreement with the Department of Justice in October 2020 and Kline departed the following year.
Wellcome Trust, the UK’s largest charitable donor and a large institutional investor, also divested from Vista’s funds following the scandal, people familiar with the matter said.
At the time of the settlement, Smith apologised to Vista’s investors for “any issues or concerns” it may have caused, saying that “I should never have put myself in this situation”.
Based in Austin, Texas, Vista is trying to raise $20bn for its first flagship buyout fund since the firm was shaken by the scandal. It has until October to raise the money or the firm will have to ask its investors for an extension to the deadline, people familiar with the matter said.
Smith, a former Goldman Sachs banker, founded Vista in 2000 and the firm was initially seeded with money from software entrepreneur Robert Brockman.
Under its founder, Vista grew rapidly, acquiring a reputation for its expertise investing in software companies, and it manages over $100bn in assets. The group has recently sold large software companies like Cvent and Ping Identity, while acquiring Avalara and Citrix Systems, in two of the largest private equity takeovers in recent years.
The buyout industry is confronting its toughest conditions in years as higher interest rates drive up the cost of buying companies and a sluggish market for initial public offerings and a slump in takeovers makes selling them harder.
With distributions from PE firms muted, more investors are choosing to commit less to new funds. Vista’s own fundraising effort comes amid concerns over whether the returns made backing tech companies during the last two decades can be sustained.
The reputational risk generated by the tax scandal has also weighed on the fundraising, with some investors telling the Financial Times they chose not to participate.
Since GIC ditched its holdings in Vista, the sovereign wealth fund has co-invested with other private equity firms in deals in which Vista also participated, a person familiar with the matter said.
Vista and GIC declined to comment. Wellcome Trust declined to comment on its relationship with Vista but said “we take ethical considerations very seriously when making investment decisions” and are “prepared to take action” if our expectations are not met.
In a recent letter to investors, Smith noted that the new flagship fund is on track to be the “largest pool of capital” it has ever raised. Its previous flagship fund raised $16bn in 2018.
In October 2021, Vista borrowed against its management company to raise $930mn, most of which was to invest in future funds, the FT has previously reported.
In an effort to entice investors to back its new flagship fund, Vista adopted several tactics to accelerate the pace at which it returns money to investors. These include so-called net asset value financing, which involves a buyout firm borrowing against a portfolio of assets.
Earlier this year, Vista hired Goldman Sachs to arrange a $1.5bn loan secured against its portfolio companies, the Financial Times has previously reported. Some of the money was used to pay investors.
During its fundraising push, Vista has sold off assets to generate profits for investors, monetising over $14bn in investments since November 2021.
“At a time when many investors are struggling to create realisation opportunities for their portfolio and limited partners, Vista has delivered consistent returns,” Smith noted, according to someone who has seen the investor letter.
The letter did not mention whether the firm would seek an extension on its October fundraising deadline.
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