Goldman, AXA target ‘early’ secondaries

Goldman Sachs and AXA Private Equity are raising ‘early’ secondaries funds to invest in LP interests that are only minimally drawn.

Goldman is targeting $300 million for Goldman Sachs Early Secondaries Fund, which is the bank’s first fund dedicated specifically to investments in young LP stakes. Goldman closed a $5.5 billion general secondaries fund earlier this year.

Goldman will target LP stakes that are below 50 percent drawn, and will look to buy interests that are around 10 to 20 percent funded, according to a source with knowledge of the situation.

AXA, which is backed by French insurance giant AXA, is trying to collect €600 million for its fourth early secondaries fund.

Both funds are currently in the market but have not yet held first closes, according to a source. Goldman and AXA did not return calls for comment.

Both funds will take advantage of a unique dynamic in today’s secondaries market, which is an influx of earlier LP stakes that were discharged onto the market last year as some investors frantically looked for ways to raise liquidity, according to a source with knowledge of the secondaries market.

Some LPs last year made commitments only to turn around months later and get rid of the commitments because of liquidity problems, the source said.

“This is the first time we’ve seen a large number of investors trying to sell large amounts of vintage funds in the first year,” the source said.

Goldman closed its fifth secondaries fund in April after collecting $5.5 billion. It’s not clear why Goldman needs a separate fund for investments in early secondaries stakes, but one source said the rules of GS Vintage Fund V may force the bank to buy stakes in funds that are invested by a certain amount.

The strategy behind buying early secondaries differs from that of traditional secondaries investments. Usually, a secondaries investor will look to pick up LP interests that are 70 to 75 percent invested, making a bet on the companies in which the fund manager has invested.

With early secondaries, the buyer is making a bet on the fund manager, who still has most of the fund to invest.