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Singapore’s sovereign wealth fund GIC, one of the world’s most influential investors, has sold its stake in buyout firm Vista Equity Partners after its founder was embroiled in a tax scandal, people familiar with the matter said.
GIC sold about $300 million of its holdings at a discount, causing the Singapore fund to lose money on its investments, people familiar with the matter said.
It’s rare for an investor to sell stakes in a buyout fund for reputational reasons, underscoring the challenges facing Vista as it tries to reach a deal with billionaire founder Robert Smith in 2020 to close a deal with the U.S. The $100 million settlement scandal draws a new line. Authorities resolve criminal tax investigation.
Smith admitted he participated in a tax scheme that enabled him to evade millions of dollars in taxes. Several of Vista’s top dealmakers, including Brian Sheth and Alan Kline, left after the settlement. Shays resigned in October 2020, a month after Smith reached a non-prosecution agreement with the Justice Department, and Klein left the following year.
Wellcome Trust, Britain’s largest philanthropic donor and a large institutional investor, also withdrew from Vista’s funds in the wake of the scandal, people familiar with the matter said.
In reaching the settlement, Smith apologized to Vista investors for “any questions or concerns” it may have caused and said “I should never have put myself in this situation.”
Austin, Texas-based Vista is trying to raise $20 billion for its first flagship buyout fund, which has been rocked by the scandal. The company has until October to raise the money or it will have to ask investors to extend the deadline, people familiar with the matter said.
Smith, a former Goldman Sachs banker, founded Vista in 2000, with initial funding from software entrepreneur Robert Brockman.
Under the leadership of its founders, Vista has grown rapidly, gained a reputation for its expertise in investing in software companies, and manages more than $100 billion in assets. The group recently sold large software companies such as Cvent and Ping Identity, while acquiring Avalara and Citrix Systems, two of the largest private equity acquisitions in recent years.
The buyout industry is facing its toughest conditions in years as rising interest rates drive up the cost of acquiring companies, a sluggish initial public offering market and a slump in buyout activity make it harder to sell companies.
As allocations from private equity firms decline, more investors are choosing to reduce their commitments to new funds. Vista’s own fundraising drive comes amid concerns over whether the returns from backing tech companies over the past two decades can be sustained.
Reputational risks arising from the tax scandal have also put pressure on fundraising, with some investors telling the Financial Times they are choosing not to participate.
Since GIC gave up its stake in Vista, the sovereign wealth fund has co-invested with other private equity firms in deals in which Vista was also involved, a person familiar with the matter said.
Vista and GIC declined to comment. The Wellcome Trust declined to comment on its relationship with Vista but said “we take ethical considerations very seriously when making investment decisions” and were “ready to take action” if our expectations are not met.
In a recent letter to investors, Smith noted that the new flagship fund is expected to be the “largest pool of capital” it has ever raised. Its previous flagship fund raised $16 billion in 2018.
According to a previous report by the Financial Times, in October 2021, Vista raised $930 million in borrowings secured by its management company, most of which was used to invest in future funds.
In order to attract investors to support its new flagship fund, Vista has adopted a variety of strategies to speed up the return of funds to investors. These include so-called net asset financing, which involves the acquiring company borrowing against a portfolio of assets.
Earlier this year, Vista hired Goldman Sachs to arrange a $1.5 billion loan for its portfolio companies, the Financial Times previously reported. Some of the funds are used to pay investors.
As part of the fundraising, Vista sold assets to generate profits for investors and has liquidated more than $14 billion of its investments since November 2021.
“At a time when many investors are struggling to create liquidity opportunities for their portfolios and limited partners, Vista is delivering stable returns,” Smith noted, according to people who have read the investor letter.
The letter did not mention whether the company would seek to extend its October fundraising deadline.
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