Target returns and fee arrangements of major secondaries firms disclosed

Most secondaries funds in a US pension's list of 21 vehicles target a net IRR of at least 15% and a return multiple of at least 1.5x.

Return targets and fee details of some major secondaries firms have been unveiled in documents prepared for a US pension.

MWRA Employees’ Retirement System, which manages around $690 million for Water Resources Authority retirees in the state of Massachusetts, engaged NEPC to find a private equity secondaries manager of closed-end funds.

The manager search resulted in a three-page report detailing return targets and fee structures of 21 funds, including those managed by AlpInvest PartnersBlackRockColler CapitalHarbourVest PartnersNeuberger Berman and Partners Group.

Most funds in the search list target at least a 15 percent of net internal rate of return, the documents show. All funds aim for a return multiple of at least 1.5x, with California-based venture investor Nimble Partners targeting an outsized 3x for its Opportunities Fund II.

For the majority of the funds involved, management fees are charged based on LPs’ commitment capital and vary throughout the investment period. In terms of performance fees, the most common structure is to charge 10 percent or 12.5 percent of carried interest with a hurdle rate of 8 percent.

The documents also provide information about fundraise updates and expected closes, as Secondaries Investor reported on Monday.

An increasing percentage of private equity managers are offering management fee discounts to lure LPs in the slow fundraising market, according to a study by law firm Paul, Weiss, Rifkind, Wharton & Garrison. Some 38 percent of GPs offered early bird discounts on management fees in 2023, up from 18 percent in the previous year, affiliate title Private Equity International reported last month.

The performance of secondaries funds has come under the spotlight as more capital pours into the secondaries market. While returns data remains scarce for the sector, a recent study by Evercore and the HEC School of Management in Paris shows that single-asset continuation funds provide more consistency in returns than buyout funds and deliver similar performance, PEI reported in March.

The study analysed the performance metrics – including distributed to paid-in, TVPI and IRR – of 140 continuation funds formed between 2018 and 2022, a period when continuation funds increasingly became a viable exit path for GPs’ trophy assets. Such funds generated an average DPI of 0.345x, an average TVPI of 1.507x and an average net IRR of 54.1 percent as of last September.

Separate spokespeople for BlackRock, Capital Dynamics, Carlyle, Coller, GCM Grosvenor, HarbourVest, Neuberger Berman, Partners Group and Portfolio Advisors either did not comment or declined to comment. Spokespeople for HQ Capital, Newbury and Pantheon did not return requests for comment by press time.

– This story was updated with Pantheon’s inclusion.