Ethos will use IPO proceeds for secondaries deal

The firm hopes to acquire around a 10% stake in its 2011-vintage fund from LPs wanting to sell interests for cyclical portfolio management reasons.

Ethos Private Equity, which is listing its permanent capital arm EPE Capital Partners (Ethos Capital) on the main board of the Johannesburg Stock Exchange, plans to use proceeds from the initial public offering to acquire stakes in its 2011-vintage fund.

Peter Hayward-Butt
Peter Hayward-Butt

The Johannesburg-based private equity firm announced on Monday it is aiming to raise R2 billion ($139 million; €126 million) to invest in Ethos Private Equity funds. The firm intends to invest R600 million in secondaries, namely in Ethos Fund VI, which closed on R8.4 billion and is approaching the end of its investment cycle, Ethos Capital’s chief executive Peter Hayward-Butt told sister publication Private Equity International.

“On the secondaries side we would be hopeful to get a circa 10 percent stake in Fund VI, which equates to around about R600 million,” Hayward-Butt said.

The current net asset value of Fund VI, which is 80-odd percent invested, is about R6 billion, and Ethos is yet to approach any investors in the fund about potentially acquiring their stakes, Hayward-Butt said.

“We haven’t obviously gone down that route until we’re ready to put our head above the parapet and we’ve actually got the capital in the business,” he said, adding that while the Fund VI has performed well, the firm hopes there are LPs willing to sell stakes in Fund VI for portfolio balancing reasons.

Investors in Fund VI include Massachusetts Pension Reserves Investment Management Board, Old Mutual Investment Group, International Finance Corporation and HarbourVest Partners, according to PEI Research & Analytics.

Ethos Capital plans to issue up to 200 million A ordinary shares to “selected and institutional investors”. It has already received aggregate commitments of around R1 billion from investors including Ethos Private Equity, who will acquire 1 percent of the A ordinary shares on listing and will commit around 1 percent of commitments to underlying Ethos funds.

In the statement, Hayward-Butt said the listing “will provide the market with a unique opportunity to invest in a diverse pool of unlisted small to medium-sized companies in funds managed by Ethos Private Equity”.

In addition to acquiring stakes in exiting Ethos funds, Ethos Capital will make primary commitments to upcoming Ethos funds, make direct investments alongside Ethos funds, and make temporary investments in a portfolio of low-risk, liquid debt instruments – including South African government bonds – for cash management purposes.

Since its launch in 1984, Ethos Private Equity has made 104 acquisitions, 91 of which have been realised, delivering a gross realised internal rate of return of 37.4 percent and a 3.4x return, it said.