When financial services investor Pollen Street Capital acquired insurance group Markerstudy in January 2021, it probably didn’t expect it would be mulling a continuation fund on the asset as early as the following year.
As we reported this week, the London-headquartered firm has just run a GP-led to move Markerstudy and a separate asset into a continuation vehicle backed by co-leads AlpInvest Partners, LGT Capital Partners and StepStone in a Lazard-advised process.
The deal is not your run-of-the-mill GP-led secondaries transaction. For one, an M&A process was run concurrently on Markerstudy in which the insurer agreed to acquire Atlanta Group, the personal insurance brokering business of independent insurance distributor Ardonagh Group. The further issues of minority investors selling out of one of the assets, and the regulated nature of the insurance industry, all combined to create a “complicated game of dominos”, as one source put it.
Those working on the transaction – which was conceived of last year – worked weekends, missed summer vacations and likely have a few more grey hairs, according to people familiar with the process.
The result has been a two-asset continuation fund plus a bolt-on, housed in an £840 million ($1.02 billion; €966.14 million) vehicle and backed by quality buyers in an oversubscribed process.
Pollen Street hasn’t held Markerstudy for long – 2.6 years at most, according to our calculations – and the fund it used to acquire the insurer, Pollen Street Capital IV, launched in 2019, data from affiliate title PEI shows.
Young assets and short hold periods is something the Institutional Limited Partners Association has cautioned on when it comes to continuation fund best practice. In its latest guidance, ILPA recommends that a GP’s rationale for running a process of this kind should be “heavily scrutinised in circumstances where the existing fund has remaining unfunded capital or is within the first five years of the inception of a fund”.
Pollen Street IV is within the first five years of its inception. We should note the continuation fund also includes software provider Aryza, which was held in Pollen Street’s third fund, launched in 2015. Focusing on hold periods may be a moot point, however. ILPA’s guidance warns against situations where a fund has remaining unfunded capital; Pollen Street is understood to have been lacking additional capital to invest in Markerstudy – something the continuation fund process could provide via follow-on capital. That LPs in Fund IV were also given the option to take liquidity or retain their exposure is a bonus – though we should also note we don’t know the exact terms that LPs were offered, and all parties declined to comment on the transaction.
Pollen Street initially invested £200 million to acquire Markerstudy in 2021. LPs in the continuation fund now have exposure to an asset with more than £3 billion in annual premiums, thanks to the add-on. The continuation fund process is expected to complete later this year and, as far as Secondaries Investor understands, it’s going to be one hell of a closing dinner.
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