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AlpInvest to launch preferred equity fund

The vehicle will focus on preferred equity, NAV-based lending and have a pocket to make secondaries investments with sub-private-equity return profiles.

AlpInvest Partners is set to extend its investment platform with the launch of a preferred equity fund.

The Strategic Capital fund will focus on preferred equity, NAV-based lending and on funding GP commitments, according to two sources familiar with the matter.

It will also have a pocket to make secondaries investments in asset classes such as credit, which have a lower return profile than the private equity assets targeted by its flagship fund, according to one of the sources.

The Carlyle Group subsidiary has already backed strategic capital deals out of a $1 billion pool of separately managed accounts, Secondaries Investor understands. The commingled fund is expected to launch in early 2022.

Like other large secondaries buyers, AlpInvest pivoted towards preferred equity during the the coronavirus crisis.

In September last year, it closed a $360 million multi-asset recapitalisation on Kinderhook Capital Fund III. The deal was structured during the crisis as a preferred equity deal which could turn back into a recapitalisation if economic conditions improved, Secondaries Investor reported.

AlpInvest’s interest in the asset class predates the pandemic. In 2019, the firm hired Vjerana Spajic from 17Capital to focus on structured and preferred equity from its London office.

The two largest preferred equity specialists are Toronto-headquartered Whitehorse Liquidity Partners, which is targeting $5 billion for its latest fund, and London-based 17Capital, which closed its most recent fund in July on $2.9 billion.

There was $7.8 billion of preferred equity transaction volume in 2020, compared with $3.7 billion the year before, according to investment bank Evercore.

AlpInvest declined to comment.