The ‘largest ever’ secondaries fund

When you start to factor in leverage, the firepower of secondaries GPs today is staggering.

Paris-based Ardian, formerly known as AXA Private Equity, collected $9 billion for its sixth secondaries vehicle this week.

It’s an impressive amount of capital, and as we reported previously, the fund held a close on $3.5 billion last December and on $5 billion in March; the rapid rate at which it garnered commitments is a heartening vote of confidence from LPs on secondaries in general, and in particular on the way Ardian has been doing business.

Ardian VI is the largest fund that’s been raised for the secondaries market so far. I say ‘so far’, because the rumours I’ve been hearing is that Lexington Partners could top $10 billion with its current fundraise. A contact I spoke with in NY dared mentioned $12 billion.

It’s definitely heady talk.

And it gets headier when leverage is factored in. The current market chatter is that Ardian tends to employ a 1:1 ratio of equity and debt. If that holds up in its latest fund, that means Ardian is wielding an incredible $18 billion in firepower, which can help it win out at large and competitive auctions for portfolios, spin-outs or restructurings (many of which require multi-billion bids).

Ardian, of course, is not the only one: in a previous editorial, I investigated the workings and reasons for Lexington’s taking out a $1 billion credit line, partially used to fund its €800 million Irish pension portfolio deal.

These examples are a good reminder that many secondaries firms can choose to punch well above the weight of their funds. I heard this week, for example, that Coller Capital is likely to (again) target $5 billion for its next fundraise – but I’d be surprised if the firm’s firepower will stop there. Going by market chatter – and investors’ flocking to funds like Ardian’s – leverage (used prudently) seems to be a shrewd way for secondaries funds to gain additional optionality and enhance returns. It also means figures related to secondaries funds in marketing mode – targeting at least a collective $36 billion across asset classes by our count – pale in comparison to what buyers really plan to spend.