The terms of SL Capital Partners‘ latest dedicated secondaries fund and the performance of its predecessor vehicles were disclosed in presentations by the firm and consultant NEPC to a US pension fund.
SL Capital Secondary Opportunities Fund III (SOF III) is expected to generate a net internal rate of return (IRR) of 17 percent over the life of the fund, according to an investment due diligence report by NEPC presented to the San Bernardino County Employees’ Retirement Association (SBCERA) on 12 April.
SOF III has a 10 percent carried interest rate and a 10 percent hurdle rate. SOF I and II had higher hurdle rates, with 14 percent and 12 percent respectively, according to the document.
The focus of the fund, which is targeting $400 million, will include niche and less competitive areas of the market including stakes in funds of funds and secondaries funds, as Secondaries Investor reported on Wednesday.
NEPC highlighted the fund’s niche strategy, the 0.4 percent management fee for SBCERA, SL Capital’s experienced team and the performance of SOF I and II as positives for investing in the fund.
Negatives included a limited track record, small general partner commitment – SL Capital will commit $1 million or 0.25 percent to the fund – and a weak keyperson clause. Five of the ten senior professionals at the firm can leave before any investment activity is suspended, the NEPC document said.
There is no fee on undrawn capital and no single deal will exceed 25 percent of the fund.
Edinburgh-based SL Capital has completed seven deals across its SOF platforms since its inception, with SOF I being 73 percent committed and 63 percent drawn on 31 March. SOF II was 36 percent committed and 31 percent drawn on the same date 31 March. The strategy had delivered a 35 percent gross IRR on 30 September.
Recent SOF investments include a $70 million deal involving fund of funds stakes from a North American pension, and a $33 million purchase from a European insurance company of European fund of funds interests.
SL Capital declined to comment.