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“PEF was very helpful when we were a new fund learning how to comply with SBA regulatory filing requirements.”
Paul Huston, Partner, Hudson Ferry Capital

Client Background

Formed in 2007, Hudson Ferry focuses on control-oriented buyout investments across a wide range of industries. Investments are made primarily in family-owned, established lower middle-market U.S. companies with enterprise values between $15 million and $75 million. The firm has $165 million of capital under management and makes investments through its second fund, Hudson Ferry Capital II, L.P., a Small Business Investment Company (SBIC). Hudson Ferry makes control oriented investments in established lower middle-market U.S. companies utilizing private capital and long-term, low-cost funding available through the Small Business Administration (SBA).

Situation

The founders of Hudson Ferry originally launched a non-leveraged lower middle market fund, but after evaluating the market and exploring their options, they decided to become an SBIC to take advantage of the enhanced returns that SBA leverage offers.

Launching a new fund requires careful planning: when that new fund is an SBIC, even greater attention to detail is needed. Recognizing that choosing an experienced, trusted fund administrator was an important part of establishing trust with both investors and the SBA, Hudson Ferry consulted their lawyers, who recommended PEF Services.

“I attended various NASBIC and ACG conferences and was impressed by PEF’s involvement and the high regard attendees had of PEF’s capabilities,” said Paul Huston, Chairman of Hudson Ferry. “I felt confident that they would do a good job for us and our investors.”

Solution

Hudson Ferry engaged PEF’s services in 2009. Working directly with one of PEF’s SBIC experts, Huston described the onboarding process as “quick and seamless.”

PEF initially focused on helping Hudson Ferry successfully complete the SBIC application process.

“There’s a lot of government regulation, there’s a lot of nuanced reporting requirements,” Huston explained. “PEF was very helpful when we were a new fund learning how to comply with SBA regulatory filing requirements.”

With licensing and government reporting smoothly underway, PEF soon began managing the firm’s LP reporting. Through the Investor Library, Hudson Ferry communicates easily with their 50+ LPs, informing them when documents such as quarterly results and tax returns have been completed.

“It serves very well in this era of electronic data storage to have all the information in one place. Our investors appreciate that,” said Huston.

For Huston, it’s a must-have, and something that would be costly and time-consuming to replicate in-house.

“You have to have it, and it’s better to outsource it.”

Results

The partnership between Hudson Ferry and PEF is now in its seventh year, and Huston said the firm continues to see tremendous value from the relationship.

“PEF offered great support early on as we were building our knowledge of the government reporting requirements,” said Huston. “Now, seven years later, they continue to keep us up to speed on new regulations and developments. It’s just a weight off your shoulders when you have experts helping you keep up with the reporting requirements.”

Hudson Ferry plans to market a new SBIC fund in late 2017. Knowing that PEF will be there to help manage the administration gives Hudson Ferry an extra measure of confidence.

“There’s no rubber stamp on SBA approval for the second SBIC license,” Huston explained. “It’s almost as lengthy a process, and since you’re only doing it at the beginning of each fund, it’s helpful to have—between your lawyer and your fund administrator—the knowledge base to ensure that you’re dotting all your i’s and crossing all your t’s.”

Huston believes that choosing the right fund administrator is an integral part of a fund’s success, enabling them to build trust with regulators and LPs alike.

“When a new fund decides to apply for an SBIC license, it’s important to pick service providers that can make your life easier, that can advance your purpose. PEF does that for us, and all in all, I give them very high grades.”

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