First Republic Bank offloads debt portfolio – exclusive

A sole buyer acquired two separate credit funds of funds as part of a clean-up in the bank's private investment arm, Secondaries Investor has learned.

First Republic Bank‘s investment management arm has offloaded a portfolio of tail-end credit fund stakes as part of a clean-up, Secondaries Investor has learned.

Altair Alternative Investment Platform, the private investments unit of the San Francisco-headquartered bank, sold stakes in 13 entities representing six underlying managers, Altair managing director Hezy Shalev told Secondaries Investor.

The process began in July and the size of the portfolio traded was around $25 million, he said. The portfolio comprised two separate funds of funds containing 2008- and 2009-vintage interests originally created by Luminous Capital, a wealth advisory firm that First Republic acquired in 2012.

One buyer acquired both portfolios. Pricing was in the low 80s as a percentage of net asset value based on a 30 June valuation date.

The deal allowed First Republic to tidy up the portfolio without leaving too much upside, Shalev said.

“One of the portfolios was delivering a 19 percent [net] internal rate of return and a 1.8x [net] return. We figured we have three to four more years left on the trade and probably based on our estimation, 0.06x to still earn, probably at the dilution of IRR, so we just figured we’d clean it up,” he said.

The other portfolio will deliver an 11 percent net IRR and a 1.45x net return after the sale, compared with a net IRR in the high 11 percent range and perhaps a 1.5x net return had the sale not occurred, according to Shalev.

“The give-up was negligible,” he said.

He declined to comment on the identity of the buyer, which advisory firm worked on the sale or the underlying managers.

This was First Republic’s first sale on the secondaries market and it may sell again as early as mid-2018, he added.

Private debt and credit funds accounted for 4 percent of secondaries deal volume last year, according to a survey by advisory firm Evercore.

Shalev said the deal priced higher than what the bank had expected it would.

“It shows that the market right now is clearly a seller’s market,” he said. “We’ve looked at a few deals to buy over the past couple of years and could not get close to anything. Here we are as sellers and we got a great price.”