Source: The Wall Street Journal

Buying Pathway Capital Management could help private-equity firm tap fast-growing wealth market.

Private-equity firm Clearlake Capital Group is buying investment manager Pathway Capital Management in a deal that will roughly double its assets under management, executives said.

The details

Clearlake will pay nearly $1 billion for Pathway, according to people familiar with the matter.

Based in Irvine, Calif., Pathway builds customized portfolios for institutional investors and wealthy individuals. It has about $95 billion in assets under management, though a chunk of that is in a business that generates lower fees than traditional private equity or credit.

The deal will bring Clearlake’s assets under management to $185 billion, establishing it as one of the largest private-equity firms. Clearlake will fall just below the top 10 firms by assets.

Pathway will also take Clearlake into new business areas including secondaries and infrastructure and could help it reach the private-wealth market.

The context

In an era when institutional investors are slowing allocations to private equity, firms are being forced to either scale up or remain small and focused to compete. Many stuck in the middle are struggling to raise money.

Santa Monica, Calif.-based Clearlake has opted to get bigger. It is a strategy the firm believes will allow it to cater to the biggest sovereign-wealth funds, which want to invest large sums across a variety of asset classes, and tap the fast-growing private-wealth market, according to co-founder and managing partner José E. Feliciano.

Clearlake invests in the technology, industrial and consumer sectors. Feliciano started the firm with fellow co-founder and managing partner Behdad Eghbali in 2006. Since 2021, Clearlake has returned more than $20 billion to investors.

Pathway was founded in 1991 as a consultant to institutions and wealth advisers looking to invest in private equity, credit and infrastructure. It also operates funds dedicated to co-investing alongside other managers in those strategies and to buying up private-equity stakes in the secondary market.

These asset classes are generally thought to be better suited for the private-wealth market than pure private equity. Pathway has yet to launch funds specifically designed for the retail market, but larger competitors such as Hamilton Lane and StepStone Group have had considerable success in that area.

Pathway is Clearlake’s third acquisition at the management-company level. Last year, the firm agreed to buy European private-credit firm MV Credit Partners from Natixis Investment Managers. Earlier this year, Clearlake combined that business with WhiteStar Asset Management, a manager of collateralized loan obligations that it bought in 2020, renaming them Clearlake Credit.