It’s not often that the topic of secondaries makes its way into the Financial Times, never mind a mainstream newspaper like UK daily The Guardian. But that’s exactly what has happened in the past week, not that it was obvious from either article.
The story, as recounted by Secondaries Investor, is that consumer-focused buyout firm Bluegem Capital Partners exited its stake in department store Liberty via a single-asset fund restructuring. The high-end London brand was lifted out of 2012-vintage Bluegem II and placed into a new vehicle backed by a consortium led by secondaries buyer Glendower Capital in a deal which values the business at £300 million ($374 million; €336 million).
The most intriguing aspect is how the business will be managed. Most single-asset deals involve a company being moved from one fund into a continuation vehicle managed by the same GP. In this instance, it isn’t the Bluegem GP that will manage Liberty, but partners from the firm acting as individuals. Bluegem declined to discuss the reasons for this arrangement. Perhaps the firm wanted to avoid the optics of having effectively sold assets to itself on two occasions in quick succession, having also carried out a Glendower-backed restructuring in 2018 on the asset?
Whatever the rationale, it was the second unusual single-asset deal to hit the market in recent months. In June, Secondaries Investor reported that AlpInvest Partners was to back a $1 billion-plus restructuring on Warburg Pincus’s 2012-vintage fund, with portfolio company Allied Universal the target. While such deals tend to be reserved for funds near the end of their lives with assets, Warburg only acquired the security services provider, one of the fund’s top-performing assets, in 2016.
What is the material difference between an asset being managed by the GP or by the individuals that comprise the GP? Could this become a common way for GPs to hold onto assets well beyond the life of a fund and if so, what are the implications? Is it in the best interests of investors for GPs to carry out single-asset restructurings early on in a fund’s life, possibly depriving them of healthy future returns? Questions like these have become quickly relevant, testament to the speed of innovation in the market.
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