Adams Street latest secondaries fund’s terms and investment strategy revealed

Details of Adams Street Partners‘ latest secondaries programme have been revealed in documents prepared for a US pension.

Adams Street Global Secondary Fund 7 is targeting a 15 percent net internal rate of return and a 1.5x multiple on invested capital, according to documents prepared by consultant NEPC for the Ventura County Employees’ Retirement Association‘s 26 September board of retirement meeting.

It charges a 10 percent carried interest over a 7 percent hurdle rate, the documents note.

Fund 7, which launched in April last year according to Secondaries Investor data, is seeking $1.5 billion.

The documents note that the Chicago-headquartered firm expects to hold the final close on the fund on 30 October. According to a source familiar with the firm, Fund 7 is expected to hold its final close next year.

The vehicle will invest in between 40 and 60 deals of around $20 million to $40 million each. As of late September, Fund 7 had made 19 investments with three additional deals pending. By transaction type, 57 percent of the fund had been invested in GP-led processes, with the remainder being invested in more diversified LP stake transactions, according to the documents.

On fees, Fund 7 charges 1 percent on committed capital for the first five years. Beginning in year six and in each subsequent year, the fees are reduced by 10 percent of the original fee, according to the documents.

Historically, Adams Street has not used leverage in its secondaries investments, the documents note, adding that the firm does maintain a subscription credit line of up to 30 percent of the total fund, which is used to “seed the portfolio during the fundraising period and to reduce the frequency of LP capital calls”.

The 2017-vintage predecessor Adams Street Global Secondary Fund 6 raised $2 billion against a $1.2 billion target by final close in June 2019 after 28 months in market.

Investors including Minnesota State Board of Investment and Ventura County Employees Retirement Association have committed to Fund 7, SI data shows.

In a September report, Adams Street partner & head of secondary investments Jeffrey Akers noted that market volatility can create “attractive opportunities” for select secondaries buyers and outlined two key factors to success when buying in market downturns: conviction and targeting investments.

“A targeted approach allows buyers to isolate the most attractive companies, managers and sectors from broader sales processes,” Akers noted. “In our experience, a targeted buyer can benefit by seeking out specific, durable and actionable features with the potential to produce strong returns rather than buying an index.

“We believe deal conviction is built through GP relationships that enhance the ability of select buyers to perform deep, consistent and timely due diligence on the underlying portfolios. Participating on fund advisory boards and having access to specific deal leads at the underlying GPs is access that only a select group of secondary buyers posses.”