In its latest outing into the increasingly crowded secondaries markets, Hollyport Capital recently completed a first close for its third fund, raising half of its eventual target of £30 million (€35.6 million, $46.8 million).
“It’s safe to say it remains a challenging market to raise capital. It was a harder process than we anticipated in reaching our first close, but we remained on schedule,” John Carter, a partner at the London-based firm, told PEO.
The bulk of the £15 million flowing into the Hollyport Secondary Opportunities Fund III came from European family offices and high net-worth individuals. The fund will focus on sourcing deals via fund of funds eager to exit smaller, orphaned investments and legacy portfolio positions, many of them approaching the 10-year mark, Carter said. The fund will target investments from £5 million to £25 million in size with no specific sector or geographical focus.
“While there has been a substantial increase in larger secondary transactions over the last six to nine months, because of our focus on legacy assets, we have seen little change to our market over the same period,” Carter said.
Fund III follows a strategy identical to the firm’s previous secondaries vehicles. Its 2008 predecessor, the Hollyport Secondary Opportunities Fund II managed a net multiple of 1.5x on invested capital through mid-year. The firm’s eldest vehicle, raised in 2007, saw a total return of 4x invested capital over the same period.
Other firms have also shown renewed interest in the secondaries arena. Earlier this year, AXA Private Equity spin-out Committed Capital raised some €150 million for its debut fund to pursue a similar smaller-size secondaries strategy. Other notable entrants into the market this year have included Newbury Partners, which pulled in $1 billion for a fund that closed in October.
An uptick in secondaries market volume comes with an anticipated upswing in pricing that concerns some investors. But firms like Hollyport remain confident smaller-sized legacy assets will remain in ample supply and at reasonable price points as larger fund groups continue to rebalance and retrench their portfolios.
“We are not involved in larger transactions … we are focused on housekeeping opportunities where investors take a strategic decision to dispose of the small, old investments at the bottom of their portfolios,” Carter said.