DuPont Capital Management, a 21-year old private equity firm that invests in both primaries and secondaries, has bought fewer limited partner fund interests on the secondaries market in recent years.
The firm now invests less than 10 percent of its flagship private equity fund in secondaries, compared to 15 percent a few years ago, according to Kevin Campbell, managing director and portfolio manager of the private markets group.
“That’s a reaction to the amount of capital that’s in the space and pricing,” Campbell told Secondaries Investor. “We’re discouraged by pricing, rather than encouraged. Assets are trading at fairly significant premiums to NAV — I’ve never seen them this consistently high.”
DuPont Capital has been investing in private equity secondaries since it was founded in 1993 as the asset manager of Wilmington, Delaware-based retirement pension plan DuPont, according to its website. The number of secondary deals the firm completes each year varies.
“If there’s a year that goes by and we don’t do a secondaries transaction, that’s fine or if there’s a year when we do three or four deals, that’s fine too.”
DuPont Capital is on track to complete just one secondary deal this year. The firm purchases LP fund stakes in private equity funds including buyouts, special situations and venture capital. The firm hasn’t purchased any real estate fund stakes yet, but is open to opportunities in the market. The majority of the investments have been made in US funds smaller than $1 billion in, with a select number in developed Europe.
“Some of the areas like Brazil that are a little more growth-oriented don’t work for our value-oriented strategy,” Campbell explained.
Most of the deals are found through proprietary relationships and those transactions tend to be priced better, Campbell said. About one third of DuPont Capital’s secondaries deals are found via placement agents. DuPont Capital avoids stapled transactions.
“We’ll never do a staple,” Campbell said. “Let’s say there’s an 18 to 24 month period between the secondaries transaction and the primary fundraise, a lot can happen. Portfolio companies can fall off the cliff or members of the management team can leave.”
DuPont Capital makes both primary and secondaries investments from its flagship funds. The firm is currently in market with its fourth fund, which launched last year with a $125 million target, according to PEI’s Research and Analytics division. Its prior fund launched in 2012 and raised $100 million. Dupont Capital declined to comment on fundraising.