(Bloomberg) -- Blackstone Inc.’s former global head of GP stakes, Mustafa Siddiqui, has launched SQ Capital, which will invest in private equity secondaries with a focus on the middle market.
The New York-based firm will have the ability to buy private equity fund positions from institutional investors such as pensions and endowments and back continuation vehicles that are formed to manage existing assets, Siddiqui, SQ’s founder and chief executive officer, said in an interview.
Due to a dearth of initial public offerings and a gap in valuation expectations between buyers and sellers that has chilled some private equity deal activity, the secondaries market has been particularly appealing to investors seeking liquidity.
SQ Capital estimates that a lull in exit volumes since 2021 has created a backlog of roughly 28,000 unsold companies, and around 40% of those have been in private equity ownership for at least four years.
Private equity secondaries “is the most compelling area of the alternatives industry,” said Siddiqui, who likened the opportunity to the fat pitch he’s been waiting for. “It’s time to swing.”
Many funds focused on private equity secondaries have increased in size in recent years, resulting in a focus on larger transactions, Siddiqui said.
The skew toward big deals has “created an air pocket, a real need for more players in the middle market,” said Siddiqui, who spent almost 15 years at Blackstone, most recently leading the unit that buys stakes in other alternative asset managers.
There are about 2,000 middle-market private equity funds in the US and Europe, which contribute to a roughly $4 trillion addressable market, he added.
‘Meaningful Edge’
SQ Capital hired Mike Petryczenko, former chief financial officer of NewVest, as its CFO. He’s also an alumnus of Blackstone’s strategic partners unit, which specializes in secondaries investments.
The firm tapped Naiel Iqbal, Tiger Global Management’s former head of data and research, as an operating partner, and it plans to tackle private equity secondaries with the assistance of data and artificial intelligence.
Beyond using AI to analyze data provided to investors, SQ hopes it can gain a “meaningful edge” by obtaining information that will bolster its evaluations of companies being considered for secondaries transactions, Siddiqui said.
During Siddiqui’s tenure overseeing GP stakes, Blackstone invested in Sentinel Capital Partners, GTCR, FTV Capital, Nautic Partners and Great Hill Partners. He was previously a senior managing director within the firm’s private equity arm.
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