BCS Barclays PLC

Goldman Sachs Group Inc. made its first direct investment in a private-equity firm, taking a minority stake in Littlejohn & Co.

The investment in Littlejohn, with more than $4 billion under management, was made through Goldman's Petershill program, a fund strategy under the New York firm's Alternative Investment & Manager Selection group, or AIMS, which is known for backing hedge-fund managers.

Goldman said in a news release that Petershill acquired a passive, nonvoting stake in Littlejohn representing a less than 10% interest in the buyout firm. Financial terms of the deal weren't disclosed.

The investment is the latest in a busy summer in which dedicated capital pools are taking direct stakes in well-established private-equity firms, looking to profit from these firms' management- and incentive-fee streams.

Dyal Capital Partners—a Neuberger Berman LLC unit and Goldman's main competitor in making such minority-stake investments—in the past two months took a less than 15% stake in midmarket buyout firm H.I.G. Capital in a deal that valued the firm at $4.5 billion; and a less than 10% interest in technology-focused private-equity firm Silver Lake.

A person familiar with the situation told WSJ Pro Private Equity in May that Goldman intends to make initial investments in private-equity firms from Petershill II LP, a $1.5 billion investment fund raised last year, mostly for hedge-fund manager investments.

The person added Goldman has plans to raise a dedicated pool focused on taking stakes in private-equity firms and deploying $1.5 billion for the strategy.

Within private equity, Goldman aims to build a diversified portfolio of managers across sectors, strategies and geographies, said the person, adding the firm will look at both midmarket and larger fund managers.

Formed in 1996, Littlejohn, of Greenwich, Conn., has built a track record buying and selling companies with $100 million to $800 million of annual revenue, making equity investments of $50 million to $150 million, but the firm has kept a low profile compared with many of its buyout peers.

According to Littlejohn investor Oregon Public Employees Retirement Fund, Littlejohn Fund III LP, a 2005-vintage vehicle, returned 2.37 times its capital as of Sept. 30 and posted an internal rate of return of 25.4%.

The firm has since raised two other funds: Fund IV, a 2010-vintage vehicle with $1.34 billion of commitments, and its latest fund, which closed at its $2 billion hard cap in 2014.

Littlejohn's credit business takes part in a broad spectrum of investments, from secured term-loan obligations of non-investment-grade corporate borrowers to debt and equity of financially distressed companies.

All proceeds from the Goldman investment will be retained by Littlejohn "and used for the continued growth of its core private equity, special situations and performing credit strategies," according to the release. This eliminates investor concerns that the freshly injected capital might only financially benefit Littlejohn's founders.

Goldman said the investment follows a 17-year relationship between Goldman's AIMS group and Littlejohn, adding that AIMS has backed all of Littlejohn's committed capital private-equity funds.

Goldman's AIMS group manages more than $150 billion in assets across hedge-fund, private-equity, real estate and traditional long-only managers through new fund commitments, secondary investments, fund-of-fund investments, co-investments and seed-capital investments.

Investment bank Barclays PLC and law firm Debevoise & Plimpton LLP advised Littlejohn on the transaction.

(END) Dow Jones Newswires

August 17, 2016 18:05 ET (22:05 GMT)

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