Fundraising

Northleaf collects $1.3bn for ‘flexible’ mid-market secondaries strategy

Reduced exit activity in the buyout market, coupled with the denominator effect, is creating opportunities for buyers, Shane Feeney, managing director and global head of secondaries, tells Secondaries Investor.

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Northleaf Capital Partners has closed its latest secondaries fund, marking a more than 60 percent step up in capital between vintages.

The Toronto-headquartered firm collected $1.3 billion for Northleaf Secondary Partners III, according to a statement shared with Secondaries Investor. The fund, which did not have a hard-cap, beat its $1.25 billion target, having launched in early 2021, Shane Feeney, managing director and global head of secondaries, told Secondaries Investor.

“Although we have evolved, the strategy has remained very consistent, really focusing on high-quality assets where we see strong asymmetric upside return,” Feeney said, adding that the fund was focused on the mid-market.

Existing and new investors backed NSP III, according to the statement. The firm widened its investor based in Europe, Feeney said.

NSP III, which is private equity-focused, will take a flexible approach to its portfolio construction and will roughly split its deployment evenly between LP portfolios and GP-led processes, according to Feeney.

“There’ve been different periods where we’ve seen more opportunity on the GP-led side and then more opportunity on the LP-led side. One of the nice things about our strategy is it does give us the flexibility to tilt in different periods of time and different regions where we see pockets of opportunity develop,” he said.

The fund will also back single-asset deals. Secondaries Investor understands the fund’s cap on such deals is in the low single digits as a percentage of the total fund.

The fund is a little over 50 percent invested already, according to Feeney.

Predecessor fund, Northleaf Secondary Partners II, raised $801 million in 2018, according to Secondaries Investor data.

Reduced exit activity in the underlying buyout market combined with the denominator effect is producing a “very interesting investment climate” as the private equity market adjusts to these changing market conditions, according to Feeney.

“It takes time for [pricing] expectations to adjust,” he said. “I don’t think we’re going to see panic selling, I don’t think we’re in a GFC-style crunch. I think we’ll probably see above trend-line LP [selling] activity through the course of 2023.”