The terms of Lexington Partners‘ latest US mid-market secondaries fund have been disclosed in a document produced by the Minnesota State Board of Investment.
Lexington management will commit 2 percent of the total size of Lexington Middle Market Investors IV, or $40 million, whichever is lesser, according to a November investment advisory council report for the $82.7 billion retirement fund obtained by Secondaries Investor.
The fund, which will focus on investing in established US mid-market buyout funds that are less than 50 percent invested, will levy a management fee of 1 percent per annum of capital committed, which will be reduced to 0.85 percent after the investment period.
The fee is calculated on the basis of the reported value of all secondaries investments and unfunded commitments to secondaries investments.
The document shows a five-stage waterfall distribution of returns: Lexington will distribute 100 percent of its returns to the limited partners until the investors have received back the aggregate amount they have invested, including fees and expenses. Once this has been achieved a hurdle rate of 7 percent will kick in and after this, the Lexington is entitled to 100 percent of returns until it has received carried interest of 10 percent.
LPs are entitled to 90 percent of returns and Lexington 10 percent until a 10 percent IRR has been reached. The firm will receive 100 percent of capital until it receives a cumulative carried interest of 12.5 percent. Thereafter, 87.5 percent of capital goes to LPs and 12.5 percent to the fund.
The keyman clause stipulates that a temporary suspension period will occur upon the failure for any reason of three out of the five key persons for a period of three consecutive months to devote sufficient portion of their business time to the advisor and related entities. The five persons identified are managing partner Brent Nicklas and partners Charles Grant, Marshall Parke, Lee Tesconi and Wilson Warren.
Lexington Middle Market Investors IV had raised at least $190 million prior to SBI’s investment, according to PEI data. In December Houston Police Officers’ Pension System said it will commit between $25 million and $35 million to the fund.
Lexington declined to comment.