Five Arrows backs Tikehau off-balance sheet deal – exclusive

The Rothschild secondaries unit is backing a €210m deal to open the Paris-listed manager's growth portfolio to third-party investors.

The secondaries unit of Rothschild Merchant Banking Group is leading a deal that will allow Tikehau Capital to boost its third-party asset base, Secondaries Investor has learned.

Paris-headquartered Five Arrows backed the transfer of six growth-stage assets off the balance sheet of Tikehau into a separate vehicle, according to a source familiar with the matter. Tikehau will continue to manage the assets, it is understood.

The deal was run by Flow Advisors – launched by former Evercore head of European private capital advisory Nicolas Lanel – and was worth €210 million including follow-on capital to develop the assets.

Five Arrows has also made a stapled commitment to Tikehau Growth Equity Fund II, which received a cornerstone investment from Tikehau Capital in the first half of last year and started being actively marketed earlier this year. The size of the commitment is not clear.

Prospective investors in Fund II will be given the option to invest in the secondaries vehicle. Tikehau itself will maintain some exposure to the secondaries vehicle as a limited partner, Secondaries Investor understands.

The formation of the secondaries fund was first mentioned by Tikehau in its first quarter results in September.

Tikehau, which has €23.4 billion in AUM and is listed in Paris, has traditionally invested in private equity, private credit, real estate and other alternative asset classes using its balance sheet. In recent years it has been expanding its third-party capital.

“Third-party management is generally better understood by analysts – they tend to attach more value to the fees that come with third-party asset management [as opposed to the capital growth associated with private equity],” a source familiar with the firm’s plans told Secondaries Investor.

Rothschild held a €451 million final close on Five Arrows Secondary Opportunities IV in 2016, exceeding its target of €400 million, Secondaries Investor reported. Fund V was registered in Luxembourg in March. Its target is undisclosed.

This is not the first deal of this type to close in France this year. In August, Secondaries Investor reported that Eurazeo sold a strip of five assets off its balance sheet to a syndicate led by Lexington Partners. These assets were used to seed flagship buyout fund Eurazeo Capital IV, which held its final close in July on €700 million.

Tikehau, Five Arrows and Flow Advisors declined to comment on the deal.