Private Equity Financier's Returns Slump in a $1.2 Trillion Market

Yann Robard was an early mover in a type of financing that's hotter than ever: helping investors extract cash from private equity stakes that are hard to value and sell.

His firm, Dawson Partners, grew by giving institutions a way to turn bundles of illiquid fund stakes into fast money. Previously known as Whitehorse Liquidity Partners, it's a key player in fund finance, an expanding $1.2 trillion market where nonbanks have gained ground in its most arcane corners.

Now cracks are emerging in a strategy of stacking more leverage on investments already laden with debt.

Take Brightline railway. Stretching from Miami to Orlando, it was private equity’s bet that droves of Floridians would forsake cars for train commutes. The company has bled money and racked up debt, and its trains logged more safety incidents per mile than the national average. It’s among the many assets tied to the complex financings Robard created, and one of several positions dragging down the performance of Dawson's inaugural fund.

After posting double-digit gains early on, the fund was generating an internal rate of return of less than 4% at midyear, putting it in the bottom quartile of peers, according to MSCI. The railway business accounts for 2.4% of invested capital in the fund.

Returns for Dawson’s first five portfolio-financing funds have dropped sharply in the 12 months through June, according to a Bloomberg analysis of investor databases. Even as Toronto-based Dawson has gathered more than $5 billion so far for a sixth fund — on track to be its largest ever — some of the firm’s oldest clients are pulling back. That includes Alaska Permanent Fund, a major early supporter.

Robard, who declined to comment, isn’t dialing down the ambition that helped him build a firm running roughly $20 billion in less than a decade. Dawson has quadrupled its workforce to 200 in four years and aims to eventually manage $100 billion.

“We, over time, have become bigger, better, faster, stronger,” Robard said on a recent Capital Allocators podcast, dubbing Dawson “a Google of private equity” because of the new ideas it generates. “We are unapologetic about our growth.”

This story is based on interviews with about 20 people familiar with Dawson, including employees and clients.

Robard, a relentless marketer who speaks of mindfulness and an ambivalence about amassing personal wealth, evangelized about his firm’s complex financings. The pitch boiled down to this: He could offer pensions and other private equity investors a way to get cash out of their holdings years early, without surrendering all of the upside if those bets ultimately paid off.

Some investors didn’t know how to categorize his firm. It had elements of private credit lending. But it also purchased fund stakes outright from pensions and institutions in the second-hand market, then bundled them with other private equity assets and sliced them up. Dawson also bought into continuation vehicles, increasingly popular tools for private equity managers to hang on longer to companies they didn’t want to — or couldn’t — sell by shoveling old bets into new funds. Robard often needed a white board and a Sharpie to pitch prospective clients.

They liked the prospect of being able to back a firm that was poised to grow as more investors poured money into private equity — and needed ways to get cash out. And the desire for liquidity from pensions and fund managers intensified as rates climbed and deals dried up.

Higher rates also created more stress for the assets underpinning Dawson’s financings. When the Federal Reserve began raising interest rates, ending an era of cheap money, businesses backed by private equity struggled with increasing debt loads, too.

Robard’s form of finance already wasn’t cheap.

Some investors questioned whether Robard’s push to help investors extract cash from illiquid bets would lead him to weaker assets.

Dawson’s myriad investments include exposure to Xplore Inc., which said last month that it completed a “comprehensive recapitalization” after skipping an interest payment due in March. The Canadian internet service provider accounts for 2.4% of invested capital in Dawson’s second fund. Another investment, Clearlake Capital-backed tiremaker Hoonigan, filed for Chapter 11 bankruptcy protection in September.

A person familiar with the matter said Dawson has exposure to 40,000 companies and that its diversified portfolio guards against losses.

But that wasn’t enough to assuage investors, who expressed concerns about its rapid fundraising pace and mixed returns.

Alaska Permanent Fund, which anchored the first fund and shares in some of Dawson’s earnings, opted against backing the sixth vintage. So, too, have Alberta Investment Management Corp. and Canada’s Public Sector Pension Investment Board, which had committed to previous funds.

Dawson is making a concerted effort to distribute cash to investors. The firm approached some second-hand buyers within the past year to gauge their appetite for taking over some of its investments, and it tried to sell several hundred million dollars of older assets at a roughly 20% discount.

Robard, a former public pension official, typically leans into his life experiences when pitching his funds.

The avid cyclist, hiker and canoeist tells acquaintances about how a 600-mile bike ride in 2014 to Fairbanks, Alaska, from Whitehorse, Yukon, cemented his resolve to start his own firm. He launched Whitehorse Liquidity Partners a year later, joining 17Capital and other private credit firms in the business of providing financing to fund investors. While he talked to associates about nature’s healing powers, he also made clear that he planned to build a $100 billion asset manager.

Over the years, Robard’s penchant for financial alchemy fueled ever larger funds and structures that peers have considered unusual.

Most fund managers pride themselves on investing in lockstep with clients. Dawson, however, doles out pieces of its bets in ways that can change the alignment between the firm’s funds and the investors in those pools.

Sometimes Dawson buys bundles of private equity funds outright from investors who want to cash out. That gives the firm more portfolios it can finance.

Dawson repackages and slices up these portfolios, taking most of the safer portions that are first in line for cash. Then it gives investors a chance to take the rest.

Those who choose to take some of the riskier portions are positioned for bigger gains. But if the assets underperform, Dawson’s funds are typically positioned to fare better, putting some clients on an unequal footing.

Some complained to the firm that his interests weren’t aligned with theirs, demanding bigger slices of the preferred tranche.

“If a manager invests in a structured product with investors, but is in a different part of the capital structure or bears different risks, this may create a conflict of interest that will need to be managed,” said Igor Rozenblit, a former US Securities and Exchange Commission official who founded Iron Road Partners, a regulatory consulting firm.

In late 2021, the Pennsylvania Public School Employees’ Retirement System touted Dawson’s strategy when it committed more money to the firm, but warned in a memo that its larger fund sizes and syndication tactics posed risks.

In recent years, Robard explored branching off to lend directly to companies and told people he considered buying another asset manager to get there.

Meanwhile, he explored tie-ups with Carlyle Group Inc., KKR & Co. and Brookfield Asset Management, but formal talks didn’t materialize.

A person familiar with the matter said Dawson is always in discussions to generate deal flow, but Robard has never considered selling the firm.

Dawson recently launched a new fund that would be more suitable for wealthy individuals. It also created collateralized fund obligations, which involve bundling fund stakes into a security that can be rated for insurers. That market has been growing as insurers seek higher returns.

Robard continues to scout for deals. This year, Churchill Asset Management struck a financing arrangement with Dawson, saying Robard’s firm offered “structural creativity” and liquidity to Churchill investors. A month later, Dawson completed a transaction with a US-based asset manager that topped $900 million.

He recently renamed his firm Dawson for a city on the Yukon River, following a trademark squabble with buyout firm H.I.G. Capital, whose direct-lending arm is called Whitehorse Capital.

Dawson “is a name that is true to our roots, while positioning us for the next chapter of growth,” Robard said in a statement at the time.

Brightline, meanwhile, followed through on a plan to refinance debt in recent months. It previously warned it didn’t have the funds to repay all obligations. The company is forging ahead with plans for a high-speed rail system connecting Las Vegas and Southern California with the help of a $3 billion government grant.