Vista changes key-man rule with Fund VI

Vista Equity Partners made significant changes to its sixth flagship fund’s key-man provision, the result of Dyal Capital Partners taking a minority stake in the firm, according to a Buyouts review of limited-partner memos and a source with knowledge of the situation.

If Vista Chairman and CEO Robert Smith were to leave or take a diminished role at the firm, investors in older funds could vote to halt Vista’s authority to use existing vehicles for new investments, according to memos published by Los Angeles City Employees’ Retirement System.

This is known as a key-man provision, designed to protect fund investors from diminished performance caused by staff turnover.

Vista made a significant change to the key-man provision with its new flagship vehicle, Vista Equity Partners Fund VI, which at its $8 billion target or $10 billion hard cap would be the firm’s largest fund to date.

A key-man event would be triggered only if both Smith and Vista co-founder Brian Sheth departed the firm or took diminished roles, according to a Portfolio Advisors memo included in LACERS’s June 16 meeting materials.

Vista prepared the change after it sold a stake in its management company to Dyal, a Neuberger Berman subsidiary, last year, a source said.

Dyal’s purchase, which reportedly valued Vista at $4.3 billion, would entitle the firm to a portion of Vista’s management fees and carried interest.

Why the Dyal transaction led to the change is unclear. But by tying a fund’s key-man event to the departure of two executives, rather than just one, the firm limits the likelihood of such an event.

The change appears to have had little effect on demand for Fund VI. LACERS committed as much as $30 million to Fund VI, according to a June disclosure. New Jersey Division of Investment, New York State Common Retirement Fund and Oregon Investment Council have pledged large amounts to the vehicle.

In its recommendation memo, Oregon investment staff wrote they expect the vehicle will likely be oversubscribed.

Vista Equity Partners has more than $25 billion of committed capital under management. The firm maintains offices in Austin, Chicago and San Francisco.

Action Item: Read LACERS memos for Fund VI: http://bit.ly/1rqlK9E

Photo of Robert Smith, chief executive of Vista Equity Partners, courtesy of the firm.