Having raised its first continuation fund in 2022 on €1.3 billion, Astorg has since moved to set up its own single-asset continuation fund strategy, seeking to capitalise on its track record as a buyout shop.
While Michal Lange, a partner at the Paris-headquartered private equity firm, was not intimately involved in the transaction, which saw fund services business IQ-EQ – a company he had worked with as part of the deal team – moved into a separate vehicle, the success of the deal did spark the strategy.
Lange told Secondaries Investor that he discussed the continuation fund transaction in great detail with the deal team that was involved in the IQ-EQ transaction. Astorg found the strategy to be a “very attractive tool” to retain “really good assets” where there was a strong growth story.
In July, Secondaries Investor reported the firm had hired Sebastiaan van den Berg from insurer Arch Capital Group to co-head the firm’s GP-led strategy alongside Lange. As CIO of alternatives at Arch Capital, van den Berg had experience with continuation funds. “I was quite intrigued by it – when I came back to London, I was keen to explore that more,” he explained.
The firm saw a gap in the market for concentrated continuation fund deals. Single-asset continuation funds require a different investing perspective to more traditional secondaries transactions, Lange said. “There is a very different investment approach when you are buying a portfolio of even 10 or 15 assets, let alone 1,000 assets.”
Compared with its pure-play secondaries peers, Astorg will employ a contrasting approach to continuation fund deals. The firm will seek out companies within its own investment strategy that are operating within its four key sectors: healthcare, business services, industrials and technology.
The firm will also price the continuation fund transactions it seeks to back based on the same methodology it uses within its primary buyout business. The firm’s GP-led strategy will value assets in exactly the same way as its colleagues in the buyout business, Lange said.
Secondaries Investor understands the strategy’s pricing mechanisms will be disconnected from NAV.
Astorg’s method of pricing, it believes, will create “credibility with [the] broader investor base”, helping with LPAC approval as well as syndication for a transaction, Lange added. “If you have people like us coming in… doing proper diligence on the asset and saying… ‘We’re happy with that asset at 18x [EBITDA], that probably… over time helps the product itself in terms of how comfortable people [feel] with the valuation levels of those transfers,” he explained.
Room for specialism
A typical equity cheque for Astorg’s GP-led strategy is around €150 million for a lead position (its preferred position in these deals), Secondaries Investor understands.
The strategy will be “able to perhaps even speak for the whole capital required in a €200 million continuation vehicle, or be a very significant lead investor in a €1.5 billion single asset CV”, Lange said
The firm has secured capital from long-term backers and will use balance sheet capital to complete deals in the near term, van den Berg said. Astorg is in discussions with intermediaries as well as GPs on a direct basis and has a number of opportunities in the pipeline, he added. “We’re absolutely ready to do a deal – capital is available for us and investors are interested.”
As one of the first movers in the buyout world to launch a GP-led continuation fund strategy, Lange believes the secondaries market will follow a similar blueprint to the growth and sophistication of the private equity market: evolving from generalists.
The secondaries market has already begun its transformation, specialising in asset classes beyond private equity to launch dedicated credit, infrastructure and venture capital vehicles.
Private equity also has sector and geographical differentiation, which Lange believes the secondaries industry will start to see. “There will be at some point be… a technology secondaries investor – there are some examples already – and then we believe that the separation from the LP-led and the GP-led market will also be a very important development.”