Leonard Green & Partners is expected to launch its debut pool for investments in GP-led continuation funds later this year, once the full team is in place, three sources told affiliate title Buyouts.
The firm is among a handful of traditional private equity firms that are expanding into continuation fund strategies, which some consider a natural extension of regular M&A activities. Continuation funds, including single-asset deals, have become popular among GPs as a way to deliver liquidity to LPs in older funds while extending their hold periods over certain investments.
While GP-led inventory is high, capital chasing such deals remains limited to a small universe of buyers. Private equity firms like Leonard Green have seen opportunities to move into the under-capitalised space.
Total secondaries volume last year was estimated at about $109 billion, with about $48 billion in GP-led deals like continuation funds, according to Lazard’s full-year volume report. Lazard expects about $120 billion of total volume this year, with about $140 billion expected to be raised to meet the opportunity.
Leonard Green’s secondaries strategy is called Sage, sources said. It will be led by ex-Blackstone Strategic Partners executive David Fox and ex-AlpInvest Partners executive Garrett Hall, as Secondaries Investor reported this month.
Bloomberg had originally reported on the firm’s hiring of Fox and Hall.
It is not clear yet how much the firm will target for the pool. Leonard Green is talking to LPs about the opportunity and will form a view on fund size as it consults potential investors, one of the sources said.
The firm is not entering the secondaries market broadly, the source said, but will focus on GP-led continuation fund deals. Leonard Green believes “a supply/demand imbalance offers the opportunity for a new capital provider in the GP-led continuation vehicle market”, the source said.
One way that traditional PE firms are deploying a continuation fund strategy is to approach the opportunity through the lens of sector specialisation. Accel-KKR is looking at potential growth-tech continuation fund deals in this way, sources said, and Leonard Green also will employ sector expertise.
It will be unique in secondaries “to have [Leonard Green’s] sector-focused investment partners collaborate with the co-heads of Sage to expand sourcing and diligence capabilities and that Sage will be beneficial to the [firm’s] investing ecosystem across its buyout funds”, the source said.
Leonard Green was formed in 1989 and is focused primarily on service industries in the consumer, business and healthcare, and retail sectors. The firm closed its most recent flagship pool, Fund IX, last year on around $14.7 billion, Bloomberg reported at the time.
The firm has created other ancillary strategies to its flagship pools in the past. It closed its inaugural mid-market focused fund, Jade Equity Investors, in 2019 on $2.75 billion. It closed the second Jade fund in 2022 on $3.6 billion.
The firm also closed a four-asset continuation fund deal at year-end valued at around $2.2 billion, Buyouts reported. AlpInvest led the deal that moved four companies into a continuation pool: SRS Distribution, which distributes roof, landscape and pool products; ExamWorks, a provider of services around medical examinations and peer reviews; Veritext, which provides pre-trial deposition services; and Troon Golf, a third-party management provider for golf and club-related leisure and hospitality services.
Other firms that have been expanding into secondaries include TPG, which has been raising a GP-led-focused fund; Astorg; Audax; and Accel-KKR.
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