Podcast Summary: "Why LPs are Investing into Independent Sponsors"

Podcast: How I Invest with David Weisburd
Episode: 282
Guest: Tom (TIFF)
Date: January 14, 2026

Overview

This episode explores the increasingly popular trend of Limited Partners (LPs) investing with independent sponsors—a segment of the private equity market that has grown dramatically in recent years. Tom from TIFF (“The Investment Fund for Foundations”) provides a deep dive into how and why institutions like TIFF have found attractive opportunities in this space, how they underwrite both deals and managers, and why independent sponsors represent a unique intersection of alignment, flexibility, and performance potential.

Key Discussion Points & Insights

1. TIFF: Background and Market Position (00:04–01:46)

• TIFF’s Role: Funded over 30 years ago to provide investment solutions, especially to nonprofits; manages ~$9 billion with over $3 billion in private markets.
• Client Base: Historically nonprofits; now expanding to wealth management and family offices.
• Value Proposition: Focus on outsourced CIO (OCIO) services and standalone private equity/VC strategies with an emphasis on long-term, high-quality investment returns.

"TIFF was founded over 30 years ago... as outsourced CIO solutions and private market solutions... with a strong focus on alternatives and private markets." — Tom @ 00:04

2. The Independent Sponsor Ecosystem and Growth (01:46–04:28)

• Dramatic Growth: The independent sponsor universe has exploded, with major events (like the McGuire Woods conference) growing from hundreds to thousands of sponsors.
• Quality Shift: The model now attracts seasoned professionals from large PE shops and experienced operators, not just career switchers or junior bankers.
• Support System: Entire ecosystem now exists—lawyers, lenders, intermediaries—supporting independent sponsors.

"Picture a giant conference hall full of a few thousand people at individual tables, essentially speed dating... This event has grown drastically over the last five, 10 years." — Tom @ 02:02

3. Independent Sponsors: Who, Why, and Market Structure (04:28–07:25)

• Not Just 'Funds That Couldn't Raise': Market growth means both more low-quality and high-quality entrants; clear criteria needed to identify "exceptional" sponsors.
• Attractiveness: Flexibility (less overhead, no required large team), deal-by-deal economics (no pooled carry), and selectivity versus blind pools.

“Having a clear view of what defines an exceptional sponsor is essential for long-term market success.” — Tom @ 04:35

• Career Considerations: Some remain independent sponsors for long-term flexibility; others eventually form funds for growth and team-building reasons.

4. Fee Structures & Alignment (07:25–10:15)

• Terms & Alignment: Fees often consist of tiered carry structures and EBITDA-based monitoring, driving direct alignment between sponsor and investor.
• Differentiation from PE Funds: Requires true value creation (no large, flat fees for minimal performance), with monitoring fees tied to operational improvement.

“Terms for independent sponsored deals are more clearly structured to align interest between investors and sponsors... tiered carry structures and monitoring fees based on EBITDA are now relatively standard." — Tom @ 07:37

• Benefits for LPs: Enables LPs to "test drive" managers before committing to a fund, offering both immediate investment and longer-term partnership assessment.

5. Underwriting: Deals and Managers Simultaneously (10:15–14:02)

• Deal-by-Deal Diligence: Investing alongside sponsors on individual deals gives deeper insight into their abilities, integrity, and style before making a long-term fund commitment.

"One of the best ways to diligence a manager is to do a deal with them. Especially at TIFF, one of our key pillars is finding and investing alongside emerging managers in Fund 1, 2 or 3..." — Tom @ 12:06

• Key Assessment Areas: Beyond trust: team dynamics, key person planning, attributable track records, reference checks (extensive), deal sourcing differentiation, and handling adversity.

6. GP Commitment and Alignment (15:46–16:36)

• Higher Skin in the Game: Independent sponsors typically commit 5–10% of their own capital to deals (vs. 1–5% for traditional PE), signaling stronger alignment with LPs’ interests.

"These sponsors tend to commit a significant amount of capital to their own deals... 5 to 10% compared to traditional PE GPs who on average can be closer to 1–5%." — Tom @ 16:00

7. Paths to Success: The Role of Pedigree and Differentiation (16:36–19:18)

• Not All Big Names: While many independent sponsors come from major PE shops (KKR, Apollo, Blackstone), TIFF also values specialists with deep sector expertise or specific operational experience.
• Proving Yourself: Demonstrated track record—whether as a sponsor or operator—is crucial; unique approaches are welcome.

“We want to see people who are really trained and specialists in a specific area and have this expertise... if you can show us you have a track record... we want to take a look at that.” — Tom @ 17:06

• Diversity in Backgrounds: TIFF looks for different perspectives and backgrounds, not just former large-firm investors.

8. The Complexity of Underwriting Independent Sponsors (19:18–22:51)

• What is an Independent Sponsor?: "Lower middle market managers who raise capital on a deal by deal basis instead of blind pool commitments."
• Attractive Segment: Less competition, greater chance for operational improvement, and better manager alignment—but complex and time-consuming to diligence.
• Double Diligence Requirement: Must underwrite both the company and the manager, often on compressed deal timelines.

“It’s a complex market to navigate. It really requires a combination of both company and deal underwriting as well as manager level underwriting.” — Tom @ 19:25

9. TIFF’s Unique Approach (21:46–22:51)

• Sponsor-First, Then Deal: TIFF’s approach is to first underwrite the sponsor, then the deals—ensuring both layers of diligence are satisfied.
• Not Forced to Invest in Every Deal: Once a sponsor is approved, TIFF evaluates each deal individually rather than committing blind capital.

“We want people on our investment team who have both sponsor and manager diligence expertise as well as individual deal diligence expertise... our diligence is very much sponsor first before we look at the deals." — Tom @ 21:46

10. Final Thoughts: The State of the Market and TIFF’s Edge (22:51–24:45)

• Market Outlook: Independent sponsor segment is more attractive, professionalized, and less crowded than ever, offering outsized return potential.
• TIFF’s Edge: Large enough for exciting investments, small and nimble enough to stay focused on less efficient, higher-returning opportunities.

“The market is deeper and more professionalized. Valuations still remain well below mainstream PE levels and institutional competition is still limited... our conviction has never been higher.” — Tom @ 22:58

Notable Quotes & Memorable Moments

• On Conference Scale:
  "I lost my voice within the first three minutes, which... was fun to battle through." – Tom [02:02]

• On Reference Diligence:
  "If you give us five references, we’ll likely make 20 calls. We go above and beyond in that sense because this is again a long-term relationship." – Tom [14:02]

• On Manager Assessment:
  "It’s not a deal breaker if there is a bad investment in their track record. We want to look at that and dig in and say, what have you learned? What have you done since then and what’s changed?" – Tom [14:02]

Timestamps for Important Segments

• TIFF Background and Growth: 00:04–01:46
• Independent Sponsor Market Size and Ecosystem: 01:46–04:28
• Quality and Selection of Independent Sponsors: 04:28–07:25
• Fee Structures and Alignment: 07:25–10:15
• Advantages of Deal-by-Deal Diligence: 10:15–12:06
• Key Diligence Areas for Managers: 13:35–14:58
• GP Commit Insights: 15:46–16:36
• Pathways for Sponsors Without PE Pedigree: 16:36–19:18
• What is an Independent Sponsor?: 19:18–21:22
• TIFF’s Sponsor-First Due Diligence Model: 21:46–22:51
• Final Thoughts & Outlook: 22:51–24:45

Conclusion

This episode offered a comprehensive masterclass on the evolving world of independent sponsors: why LPs are increasingly interested, what makes this segment complex but lucrative, and how TIFF’s rigorous, dual-layer diligence process sets it apart. Tom emphasized authenticity, relationship-building, and a long-term outlook as central to successful partnerships in this rapidly professionalizing space.