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Eurazeo eyes more strip sales across multiple strategies

Speaking at IPEM, chief exec Virginie Morgon said secondaries will continue to play a role in increasing third-party AUM across its business lines.

The secondaries market will remain integral to Eurazeo’s growth strategy, its chief executive has said.

Speaking at a roundtable at the IPEM 2020 conference in Cannes, Virginie Morgon said that the Paris-listed asset manager would continue to seed funds using strips of assets brought off its balance sheet in its private equity and perhaps other businesses.

“My intention is progressively to have more primary capital but there will always be a part of secondary, especially in [the private equity arm of] Eurazeo Capital,” she said. “Maybe down the road Eurazeo PME, the SME business [will do the same thing].”

In August, Secondaries Investor reported that Eurazeo sold a strip of five assets off its balance sheet to a syndicate led by Lexington Partners in a process advised by Campbell Lutyens. The assets were then used to seed flagship buyout fund Eurazeo Capital IV, which held its final close in July on €700 million. Lexington also made an additional stapled commitment to the fund.

The firm closed a similar secondaries deal in 2017 in which it raised €500 million in third-party capital for Eurazeo Capital II and invested it in a portfolio of assets it already held. The fund took a 25 percent stake in the portfolio with the remaining 75 percent staying on the balance sheet.

The “buy what you see” aspect of secondaries, with primary investors able to conduct due diligence on the strip of deals in the fund before making a commitment, has helped smooth the path from being a balance sheet investor to a bona fide third-party manager, Morgon said.

Eurazeo Capital started as a balance sheet investor, and its second fund was split 80 percent balance sheet to 20 percent third-party capital. Its third fund was roughly 67 balance sheet capital, Morgon said.

“Now we are on the road to raising Fund IV and are marketing 50-50. Eurazeo Capital V will be on the road soon and will most likely be targeting 60-40.”

Asset strip sales accounted for 34 percent of GP-led transactions by value in 2018, more than continuation funds and tender offers, according to Campbell Lutyens’ 2019 Secondary Market Overview.