BEX Capital on doing LP deals in a volatile market

Last month, BEX Capital closed its latest fund on its $765 million hard-cap, Secondaries Investor reported. The Nice-headquartered firm, which buys fund of funds, secondaries and co-investment fund stakes, was in market for three months with BEX Fund IV. Founder and chief investment officer Benjamin Revillon spoke to Secondaries Investor about the fundraising process and deploying capital in a market full of downside risks.

You raised the fund in just three months. Did you consider staying in market for longer and raising more?

We made the choice to target $600 million for BEX Fund IV, knowing we raised $365 million for BEX Fund III. We asked ourselves, do we go for a quick fundraise without a roadshow or do we go for a very big number, which might take up to two years and a lot of energy? We decided to raise a pure blind-pool fund to leave time for where we add the most value, which is investing.

What proportion came from existing investors?

We raised $540 million from existing investors, so 70 percent of the fund, with some new investors unable to come in within our timeframe. There were fewer institutions as new investors because their lead time is much longer – 12 or 24 months. Happily, we closed way above our target at $765 million, without a long fundraising period.

What sort of opportunities are you seeing at the moment?

Last year, we saw the rise of LP interests in secondary funds and in co-investment funds. Post-GFC, there was a drop in the number of funds of funds raised and there was more money going into secondaries funds. Now the co-investment fund phenomenon is getting to the maturity level where it is also turning into a secondaries market. We are seeing a broader mix. The typical profile of a deal for BEX is a portfolio covering between five and 20 LP interests across a variety of funds, managers and strategies.

We have seen a widening bid-ask spread of late, particularly for tail-end positions. How do you negotiate this?

There is such a dispersion between September NAV and the market today that trying to pick assets is complicated. Given where inflation was before the Russian invasion [of Ukraine] – and that’s before the shocks to wheat, metals and energy costs have channelled through – we may well end up with double-digit inflation and potentially in recession, if central banks hike rates too much and too late.

One can pick and choose assets in concentrated GP-led deals, but for highly diversified LP-led deals, it’s very difficult. You can say, for example, ‘I’m not going to do a GP-led on a construction company because it has a lot of input costs.’ In a diversified basket of LP interests in funds of funds, there might be exposure to Russia-related assets and technology stocks that have been hammered since September, whether you like it or not.

What impact is this having on LPs that might be thinking about coming to market?

A bid today is going to reflect public markets volatility and the macro risks. If you do put in a bid based off September NAV, it’s likely to be low and this may be difficult for the seller to accept. They may decide to wait it out and prefer, if things stabilise, to trade off March valuations at a lower headline discount.