Inside ICG’s secondaries ambitions

Alternative asset managers keep expanding their secondaries capabilities. Well-known executives are moving around. Complex, structured transactions are increasingly front and centre.

All of those trends, characteristic of today’s secondaries market, were brought to mind by the recent news that global mezzanine powerhouse ICG had ended its two-year search for secondaries talent.

Publicly-listed ICG hired the team from NewGlobe Capital – a two-year-old spin-out from direct secondaries specialist Vision Capital – after partnering with NewGlobe and Goldman Sachs on the $860 million restructuring of US private equity fund Diamond Castle IV.

The ability to execute fund recaps and structured deals was the type of secondaries expertise ICG had been wanting to develop in-house for “a couple years”, according to Benoit Durteste, managing director at ICG.

“We didn’t see the benefit in duplicating a plain vanilla strategy and there aren’t that many players in this space because it’s still emerging in the secondaries market,” Durteste said. “We were looking for an angle in the market where we could bring something different.”

Heralded as a potential ‘zombie-killer’ when it launched in early 2013, NewGlobe described its strategy at the time as focused on acquiring interests in “end-of-life and ‘disrupted-cycle’ private equity funds to provide liquidity to limited partners and reset the investment time horizon for general partners and their portfolio companies”. With the founders’ direct secondaries backgrounds, they had plenty of pedigree for investing in and managing second-hand assets and began actively looking at deals.

NewGlobe was founded with backing from asset managers Hamilton Lane and Vanterra Capital. Hamilton Lane was expected to provide the bulk of capital for NewGlobe’s deals and Vanterra to supply capital as well as strategic, financial and operational support.

Vanterra had been making opportunistic investments in secondaries well before it became “hot”, according to managing partner Shad Azimi. The firm was involved in a Lehman Brothers-related secondaries transaction in 2009, but hadn’t settled on its next secondaries-related prospect until seeding NewGlobe. Hamilton Lane, meanwhile, had its own secondaries team focused on traditional dealflow but not restructurings.

Some market sources suggested NewGlobe launched with an emphasis on pure buy-ins that would replace the GP, a strategy that has proven more difficult than many market insiders originally thought, as incumbent management teams have largely remained entrenched. NewGlobe, however, has waved away the ‘manager for hire’ moniker, noting its first transaction – the restructuring of Diamond Castle IV – was in fact a GP-led recapitalisation.

Once it was working on the Diamond Castle recap, NewGlobe’s founders realised they needed more capital to get the deal done and began looking for five to eight strategic investors, market sources have said. Alongside Goldman’s contribution, ICG put up $300 million to fund the deal – $69 million of which was syndicated to co-investors including Vanterra – and a broader partnership was soon struck.

As one source put it, ICG saw an opportunity to take over the NewGlobe team and end its niche talent search, while NewGlobe liked the idea of leveraging the fundraising and other internal support functions at ICG.

As for NewGlobe’s original backers, Vanterra “plans to continue to work closely” with the ICG secondaries team, Azimi said. Hamilton Lane, meanwhile, has made headlines this week for reportedly criticising the fund restructurings that have becoming prevalent on the secondaries market. The firm is said to have complained in a note to clients that the practice was allowing funds and GPs that should be wound down to carry on at the expense of LPs, according to a WSJ blog post. Hamilton Lane, an investor in ICG funds, declined to comment but is understood to have encouraged the ICG-NewGlobe partnership.

“It’s quite a positive story,” one London-based advisory source said.

Most insiders expect more such stories, too, as alternative asset managers lacking a secondaries platform build or acquire one – witness Carlyle’s purchase of AlpInvest or Blackstone’s buying Strategic Partners – while many firms with ‘traditional’ secondaries platforms will expand them to encompass fund restructuring capabilities.

“I wouldn’t be surprised if in a few years all the large secondaries funds have acquired a GP or GP-capabilities to play in the [restructuring] market,” said a Zurich-based source.