ICG Strategic Equity Fund III had been targeting $1.6 billion to invest in complex secondaries deals on a global basis.
The firm’s head of PE solutions Andrew Hawkins, head of Europe and Asia Ricardo Lombardi, and head of Americas Christophe Browne, spoke to Secondaries Investor about the fundraise.
Congratulations on the fundraise. How did you try to expand your LP base this time around?
Ricardo Lombardi: We grew in terms of number of LPs, average commitment size from current LPs and geographic reach. Most institutional LPs have by now been on the receiving end of a GP-led transaction, so it is much easier to relate to the fundamental drivers for these deals and the potential for further growth. Our first three deals in SE III span North America, Europe and Asia, underpinning the global nature of the strategy.
Christophe Browne: We are quite proud of having broken into the US public pension market, state and municipal. It’s a great milestone for us. It’s one of the largest, most enduring sources of capital and it’s known to have the highest bar for diligence. It’s an intense process that can take 6-12 months to see through.
Andrew Hawkins: It’s good for the ICG brand in the US, which continues to gain recognition with various investment strategies launched in the past decade across credit and private equity.
What kind of questions came up on a regular basis?
RL: When your investment strategy is relatively new, the questions are going to be around the strategy itself, the track record and sustainability of our performance, as well as the competitive and market dynamics. We believe that all these factors are favourable in the context of GP-led secondaries and ICG Strategic Equity.
AH: I think the hardest thing was explaining how we are different from the incumbent secondary players. That was a theme that came up over and over again. A lot of work that these LPs did during their diligence was delving into what we do in the transaction from a diligence point of view, how we relate to the GPs we partner with, how we exercise governance, and what type of deals do we consider to have an edge on. It’s a complex story that requires a lot of explanation.
CB: The catalyst that convinced a lot of investors was the ability to prove successful exits and realisations in the portfolio from our last two funds, which have acted as proof of concept for the strategy.
Do you expect this portfolio to be different to the previous fund?
AH: No. We started doing GP-led fund restructuring transactions at ICG in 2014, principally in Europe and North America, and it’s evolved in the past few years in two dimensions. One is the deal types have expanded in scope. In Fund II we did transactions involving single assets – since before they became somewhat vogue-ish – also transactions where there is no other GP involved because we were buying direct form a seller, such as the side pocket a hedge fund, and we’ve also done spinouts from big financial institutions, like the Standard Chartered-Affirma Capital transaction last year. We expect Fund III to invest globally into all of these special, complex situations within the secondaries ecosystem.
Are you interested in these huge, highly concentrated deals?
RL: Whenever there is a set of complexities to resolve, we try to bring a solution-oriented mindset to the table. If the dynamics are such that specialisation is necessary, and we can find value, then we will want to lead the deal, even if that means making large, concentrated bets. We are comfortable doing that given our background in direct buyouts and our fund mandate, which has been tailored specifically for these situations.
Will the step-up in size change the market dynamic for you?
RL: I don’t think it changes much. The market is growing, there’s more transaction volume, and the geographical presence of these deals has expanded. So, there’s a lot of choice and as a result we can stay disciplined and selective. Our team has more than doubled in size in the past 12 months and that has upgraded our execution capabilities. At $2.4 billion, Fund III brings us the necessary additional firepower to keep up with the strong asset-class growth that we expect to persist in the short, medium and long-term.
CB: It also put us in a unique position to lead on some of these large single-asset transactions. Our peers in the traditional secondaries market really thrive on diversification. We’ve never shied away from complexity or concentration.
Andrew Hawkins joined ICG in 2014 and is a senior managing director and head of private equity solutions, based in New York.
Ricardo Lombardi joined ICG in 2014. He is a managing director and head of Europe and Asia in ICG’s strategic equity group, based in London.
Christophe Browne also joined ICG in 2014. He is a managing director with the strategic equity group, based in New York.