Hirtle Callaghan's Private Equity Program is Profiled in Dow Jones Private Equity Analyst

Hirtle Callaghan Keeps Its Eye on Private Equity’s Generational Shift

By Dawn Lim

May 5, 2016

When a buyout fund recently asked for its backers’ approval to resume investing after a senior executive’s departure triggered a key-man event, Hirtle Callaghan & Co. made sure the firm was in strong shape before casting its vote of support.

“If it’s a good organization that’s well positioned to move on from management changes, it will get our backing,” said Amy Schondra, who co-heads private equity at Hirtle Callaghan, a West Conshohocken, Pa., investment firm focused on endowments, foundations and wealthy families.

As the firm deploys its 10th fund, a $320 million private equity pool formed in 2014, it’s seeking to back general partners with an equitable distribution of economics, clear succession planning and the ability to weather leadership changes. 

Founded in 1988, Hirtle Callaghan makes six to 10 private market commitments of $10 million to $25 million apiece per year. The firm looks at whether private-equity firms are staffed to support existing platforms and new investment plays. “We favor organizations with deep benches,” said Ms. Schondra.

Hirtle Callaghan also takes into consideration whether or not firms have proper incentives in place to attract and retain talent, such as carried interest structures that enable junior and senior professionals to share in the profits, to equity incentives and shared ownership that tie deal makers to the future of their organizations. Hirtle Callaghan prefers strong key-man clauses in its partnerships.

The stability of GPs is crucial for the outsourced chief investment officer as it lays the groundwork for its own continuity. Jonathan Hirtle, the firm’s chief executive and a 64-year old ex-Marine Corps officer, does not plan to step down in the foreseeable future, but has mapped out a plan if he can no longer continue in his role. Robert Zion, the chief operating officer, would assume the CEO role while the firm carries out a search.

The firm has a more inclusive ownership structure than many of its peers. Owned by 26 of its roughly 100 employees, Hirtle Callaghan offers high performers equity as part of their bonus packages. “The culture of the firm is the most important success factor,” said Mr. Hirtle. “If we get the culture right, the rest is details.”

Hirtle Callaghan’s focus on its GPs’ succession plans highlights institutional investors’ growing sensitivity to how the private-equity industry navigates generational transitions. “Departures are a big deal, especially those of senior staff. It impacts a firm’s ability to raise assets and signals change ahead for the organization,” said Ms. Schondra, a veteran of the private-equity team since the program’s inception. She was promoted in early 2016 to co-head the team alongside Jamie Johnson​.

​Hirtle Callaghan, which has committed $1.3 billion across roughly 130 fund commitments and 95 managers, is at the center of private equity’s aging problem. It also monitors nearly $600 million in commitments for clients who come to the firm with legacy private-equity positions.

The focus on how GPs plan for their longevity is more pronounced for Hirtle Callaghan because it’s typically sought out teams with established track records. The firm has backed the funds of Advent International Corp. and Trivest Partners, said people familiar with the matter.

“Jon Hirtle and the board consider succession planning a key strength in building a firm that lasts, and they look for that same process in the firms they invest in,” said Charles Skorina of executive recruiter Charles Skorina & Co., which has assisted Hirtle Callaghan with recruiting efforts.

The $320 million pool Hirtle Callaghan is investing, raised while investors saw abundant cash distributions, is larger than its roughly $204 million predecessor fund launched in 2012. To avoid being encouraged to allocate capital into certain pools over others, the firm doesn’t charge clients extra management fees for being in private-equity pools over other asset classes such as stocks or bonds, said people familiar with the matter.

Hirtle Callaghan’s portfolios are allocated approximately 60% to the U.S. and 35% to international developed markets, with the rest in emerging markets.

“We favor organizations with strong governance policies in place and partnerships focused on regions where there is strong rule of law,” said Ms. Schondra.

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