CF Private Equity: Small secondaries deals offer great opportunities

Head of secondaries Cari Lodge tells Secondaries Investor about deployment plans for the firm’s fourth secondaries vehicle, which closed on $1.1bn earlier this month.

CF Private Equity, a subsidiary of asset management firm Commonfund, held a $1.1 billion final close for its fourth secondaries fund in early April, beating its $750 million target.

The firm also raised $110 million for a commingled ‘overage’ fund, which will co-invest alongside the main vehicle when there is excess capacity, according to a statement.

Commonfund Capital Secondary Partners IV significantly surpassed the size of its predecessor, which closed on $675 million in 2021, according to Secondaries Investor data. The latest vehicle will target secondaries opportunities at the small end of the market, which “has the most transactions and the most inefficiency”, said Cari Lodge, global head of secondaries at CF Private Equity.

Speaking with Secondaries Investor, Lodge discussed the fundraising process for Fund IV, deployment plans for the fund, and why small secondaries deals are attracting attention.

CF Private Equity’s fourth secondaries fund managed to significantly beat its target in a tough fundraising environment. Can you tell me more about the fundraising process?

We’ve got great support, including in our first close, from a lot of new investors, as well as our existing investors. We were able to expand our LP base to some larger investors… We also received a lot of support from family offices.

For high-net-worth individuals and family offices, secondaries are a great entry point into the private equity universe… Typically, secondaries offer good risk-adjusted returns, diversification benefits and shorter durations, which all bode well. You also get a reversed J-curve coming out of the gate given the discount we purchased a lot of the LP secondaries at.

How does the overage fund work with regard to the main vehicle?

It’s basically co-investing alongside the main fund. When there is excess opportunity in some of the deals that we are doing, [or] if a transaction is larger and we want to maintain our diversification within the main fund, we take part through the overage vehicle as well. Some of our larger investors have participated in our overage fund.

What’s your deployment plan for Fund IV?

The majority of the fund will be LP positions.

Historically, we focused a lot on tail-end secondaries, which are funds [that are] 10-15 years old. Currently, as investors are looking for liquidity amid the slower M&A and IPO market, one of the places where pricing is better is in younger vintages… We’ve seen a barbell in terms of exposure in the LP market.

Our average [transaction size] across our funds is somewhere between $5 million-$15 million. We are definitely at the small end of the secondary market, looking to deploy somewhere between probably 120-150 transactions into the fund.

We are opportunistic globally… We have historically done secondary transactions in the emerging markets and other regions, but right now we are seeing a great opportunity set in the US and Europe – largely in buyouts, although we do have a bit of exposure in venture capital.

We have started to deploy and plan to invest the fund over three years.

What helps CF Private Equity stand out in the secondaries market?

We have a knowledge and access advantage. We sit on a number of primary advisory boards, and we are focused on very high-quality GPs and companies.

It’s a great opportunity to get a very diversified portfolio and exposure at the small end of the secondary market, [which] tends to have the most transactions and the most inefficiency… Sellers tend to be less price sensitive at this moment… because [smaller deals have] less meaningful impact on their portfolio. When you are selling a larger transaction, every percentage of price makes a larger difference on your institution.