ICG buys fund of funds stakes in expansion of LP portfolio business

The deal, which involved buying fund stakes from Aberdeen Standard Investments, is the first of size for ICG's LP funds team, led by two ex-Pomona executives.

Intermediate Capital Group has built a reputation as one of the prominent investors in GP-led secondaries deals over the past few years.

The firm also has built up an LP fund investing group, led by ex-Pomona Capital executives. ICG recently completed its first LP portfolio deal of size, around €400 million of PE fund stakes from Aberdeen Standard Investments, sources told affiliate title Buyouts.

The deal represents an expansion of ICG’s secondaries business into traditional LP portfolio sales, which have declined since the pandemic downturn but are expected to ramp back up by year-end.

The firm, which has raised a series of funds focused exclusively on GP-led secondaries deals, is expected to raise a fund for LP portfolio sales, sources said. ICG registered a fund in Luxembourg last year called ICG LP Secondaries Fund I, as Secondaries Investor reported last year. It is not clear if that fund is actively fundraising yet, and if so, what the target is.

ICG also is in market with its fourth Strategic Equity fund that focuses on GP-led deals, targeting $5 billion. Fund IV raised $2.5 billion as of April, Secondaries Investor reported.

ICG’s LP-focused team has invested from ICG’s balance sheet and sourced capital from LP co-investors, sources said. An ICG spokesperson declined to comment.

Skill sets

Secondaries is seeing a division of talent as GP-led deals, and LP portfolio sales, require different skill sets. GP-led deals require more of a direct investing focus, while traditional fund sales call for more of an LP approach.

Hence, firms like ICG and Blackstone have raised separate funds for GP-led deals and LP portfolio sales. ICG’s team is led by Oliver Gardey, Ryan Levitt and Vivien Blossier.

Gardey, head of private equity fund investments, spent 10 years at Pomona, becoming head of its European operations, before leaving in 2019 to join ICG. Levitt, managing director, joined from Drum Capital, before which he spent 11 years at Pomona as a partner.

Blossier, head of European secondary investments, joined in 2019 from Unigestion, before which he worked at Pomona.

Aberdeen Standard Investments has been shopping the portfolio since at least earlier this year, Secondaries Investor reported. Triago worked as secondaries adviser on the deal, sources said. As Aberdeen manages more than 100 private equity vehicles, it’s not clear which were involved in the secondaries sale.

However, at least part of the sale involved the firm’s European Strategic Partners fund from 2004, according to a UK public filing. The filing disclosed that an Aberdeen Standard vehicle called ESP 2004 Conduit (European Strategic Partners) transferred its interest in Apax Europe VI to ICG.

An Aberdeen Standard spokesperson did not respond to a request for comment.

Forward market

Funds of funds have been big sellers on the secondaries market in recent years as they work to clean up older pools and provide paths to liquidity for investors in those funds. Asset management firms like funds of funds, and financial institutions, were the biggest sellers of LP stakes in the first half, according to Campbell Lutyens’ half-year secondaries volume report.

“These experienced investors are likely to view current market conditions as favourable for locking in gains and rebalancing their portfolios,” the report said.

The LP stakes business traditionally represented the bulk of activity volume in the secondaries market. But GP-led deals like single-asset continuation funds for the first time eclipsed LP sales last year, as managers rushed to the market for ways to hold certain assets longer.

LP sales faded out last year in the pandemic downturn as economic uncertainty made it difficult for buyers and sellers to properly value underlying funds and their portfolio companies. The expectation was that LP sales would flood back to market this year, but the recovery on that side of the business has been more muted.

Still, Campbell Lutyens found that LPs sales represented about 34 percent of the $50 billion in total market volume in the first half. GP-led deals accounted for 55 percent of total market volume, the report said.

Further, the majority of fund stakes sold in the first half were post-2015 vintages, with only 12 percent representing pre-2010 vintages.

– This report was first published on affiliate title Buyouts.