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17Capital closes pref equity programme on $4.5bn

Preferred equity volumes more than doubled in 2020 as GPs sought capital to shore up balance sheets and make acquisitions amid market volatility.

17Capital has raised its largest ever pool of capital dedicated to preferred equity, a strategy that has spiked in popularity in recent years.

The London-headquartered firm has collected $4.5 billion for its fifth preferred equity programme, $2.9 billion for 17Capital Fund 5 and the rest for co-investments and separately managed accounts, according to a statement. This compares with €1.2 billion raised for 2016-vintage predecessor Fund 4, according to Secondaries Investor data.

More than half of the commitments to Fund 5 came from new investors, while around 90 percent of existing 17Capital investors committed capital to the new vehicle.

“We are proud to continue our partnerships with high-quality GPs and LPs and see the long-term growth of the market continuing as the industry becomes even more sophisticated and demand for flexible and non-dilutive portfolio financing reaches unprecedented levels,” said managing partner Pierre-Antoine de Selancy, in the statement.

17Capital Fund 5 came to market in May 2019, according to Secondaries Investor data. The identities of its limited partners are not clear, though they include pension funds, insurance companies, endowments and sovereign wealth funds from Europe, North America and Asia, the statement said.

A percentage of the carried interest earned from Fund 5 will go to Epic, a non-profit organisation focused on disadvantaged youth.

Preferred equity is secured against cashflows from a portfolio of assets and can be extended without the need to precisely value the underlying assets. This has caused a spike in popularity since the covid-19 crisis as sponsors try to secure capital amid market volatility.

“We are seeing increasing demand for portfolio finance to support both offensive and defensive strategies,” de Selancy told Secondaries Investor in January. “There are GPs that may be looking to raise capital to pay down debt, or to put more cash into the businesses they own to ensure they are able to continue to meet their commitments… There are also GPs who are actively pursuing growth opportunities.”

There was $7.8 billion of preferred equity transaction volume last year compared with $3.7 billion in 2019, according to data from investment bank Evercore.

Deals 17Capital has done include a £125 million ($174 million; €144 million) tranche of preferred equity for Exponent Private Equity to enable the UK buyout shop to make follow-on acquisitions, Secondaries Investor reported.