Five things you didn’t know about Landmark’s latest PE secondaries fund

Landmark Partners‘ latest private equity fund is the largest private equity secondaries fund in market as of mid-January, according to PEI data.

Targeting $4 billion, Landmark Equity Partners XVI had raised $2.4 billion in December and is set to hit final close in the first quarter of this year.

Based on documents prepared by advisor StepStone for the State of Connecticut Retirement Plans and Trust Funds and obtained by Secondaries Investor, here are five things you might not have known about the fund and its manager.

More than three-quarters of the firm’s deals are proprietary

Almost 80 percent of the 295 investments that Landmark has made through its 15 private equity secondaries funds have been through exclusive processes. Its last flagship fund invested $1.8 billion across 27 transactions, equating to an average transaction size of $65 million, with assets acquired at an average discount of 11 percent of net asset value, the document noted.

According to the documents, around 27 percent of invested capital from the 2008-vintage Fund XV went into “preferred structures”, compared with an average of 14 percent over all 15 funds in the series. An example of this was in April when the firm partnered with Clearlake Capital to purchase a stake in the firm’s management company, originally held by Reservoir Capital.

Fund XVI has a 14-year life with extensions at the GP’s discretion

The life of Landmark Equity Partners XVI is 14 years, with two optional extra years that can be activated only at the general partner’s discretion. A management fee equal to 1 percent of NAV is charged through to year 16 of the fund. With most private equity vehicles, fees would be charged for the initial life of the fund and only be continued into the extension years with the approval of shareholders, the document noted.

Conservative use of leverage has contributed to weaker recent performance

According to StepStone, Landmark’s last three funds have under-performed compared with its peers. Its 2008-vintage Fund XV had achieved a net total value multiple of 1.3x as of 30 September 2016, 0.3x and 0.1x behind same-vintage funds from peers Goldman Sachs Asset Management and HarbourVest Partners. One reason posited for this is its lower use of leverage, according to StepStone. Fund XVI will have a leverage facility of up to 20 percent of aggregate commitments, compared with fund-level leverage limits of more than 30 percent for some of its global peers.

Non-compounded rate of return and long-running management fee

Limited partners in Fund XVI receive 100 percent of commitments and an 8 percent cumulative, non-compounded annual return before the GP receives carry. This is in contrast to most private equity funds where preferred returns are based on a compounded annual rate of return. This is flagged by StepStone as a potential issue for LPs.

Parent company to front up for GP commitment

Old Mutual Asset Management, which acquired Landmark in June 2016, has put up 60 percent of the 1 percent GP commitment to the fund, according to the documents. The Landmark team has put in 40 percent. Those who receive carried interest will pay into that 40 percent on a pro-rata basis that mirrors their ownership in the carried interest.