Mid-market focus a draw for LPs in Pantheon’s $3.25bn PE secondaries raise

Fundraising for Pantheon‘s seventh flagship fund was fuelled by LPs’ rising interest in mid-market strategies and the firm’s commitment to single-asset, GP-led vehicles, Pantheon’s global head of private equity secondaries told Secondaries Investor.

Pantheon, the fourth-largest player in the European secondaries market according to the SI 50, raised $3.25 billion for Pantheon Global Secondaries Fund VII last month – far exceeding its initial $2 billion target.

The vehicle is around 48 percent larger than its predecessor fund, which closed on $2.2 billion in 2020, Secondaries Investor data shows. Fund VII was launched in 2021 and focuses on mid-market LP-led and GP-led opportunities.

There is increasing demand from LPs for mid-market private equity secondaries – a strategy that offers diverse investment opportunities but has been overlooked by many secondaries groups, said Amyn Hassanally, global head of private equity secondaries at Pantheon.

Hassanally also noted that the growth of the secondaries market was a contributing factor to the increased scale of Fund VII. Global transaction volume rose from $58 billion in 2017 to $108 billion in 2022, according to Jefferies’ H1 2023 Global Secondary Market Review. The market downturn last year generated further momentum as LPs and GPs sought out liquidity solutions in the secondaries market.

“Since 2021, when we launched the fundraising, [the secondaries market] has become much more attractive as a destination of capital for institutional investors because market dynamics and pricing improved for buyers on LP-led and GP-led deals,” Hassanally said.

Fund VII received commitments from new and existing clients, including Pantheon’s private wealth investors, who invested at levels above historical norms, according to Hassanally.

“Private equity secondaries offer some very attractive attributes for private wealth investors – such as lower risk profile, greater diversification, quicker cashback and J-curve mitigation – relative to buyouts or co-investments or venture, which may be on the other end of the risk spectrum and liquidity spectrum,” he explained.

The fact that Fund VII was more than 60 percent larger than its original target won’t affect its ability to deploy capital efficiently, Hassanally added. “There’s an undersupply of capital on the buy side, relative to a very attractive opportunity on the sell side… That has probably helped investors get comfortable as secondary groups have grown their fund sizes.”

Single assets offer quality

Fund VII has deployed around 60 percent of capital so far, which has been evenly split between LP-led and GP-led deals.

The GP-led deals are mostly focused on single-asset transactions, with a few multi-asset transactions concentrated on two or three companies, Hassanally said.

The fund will invest in GP-leds on a pro-rata basis with the Pantheon Secondary Opportunities Fund, the firm’s dedicated GP-led investment vehicle that closed on $624 million in 2021, he added.

“When you buy a multi-asset portfolio in a GP-led transaction, the quality of what you’re buying can sometimes be mixed,” Hassanally said. “What we seek to do… is just target the highest-quality asset that has exceptional operational metrics, has [generated] a very significant return for their original investors, and has sufficient value creation remaining in the next leg of growth left for us.”

Pantheon noted a real change in the quality of managers and assets that were coming to market in 2018, particularly across the mid-market, Hassanally said. Since then, the firm has seen a steady continuation of high-quality trophy assets being brought to market.

Single-asset strategies are non-cyclical and can survive a market downturn, an important trait amid persistent macro uncertainties, he added. “Whether it’s a bull market or a recession, good private equity managers will always have outperforming assets they want to hold onto longer.”