Tiger Global works with Lexington to offload unfunded LP stakes

The deal, which has been in market since at least earlier this year, is separate from the widely reported 'strip sale' Tiger has been running to sell stakes in direct assets.

Tiger Global has been working on a structured process to offload commitment obligations to unfunded LP stakes in newer, early-stage venture funds made through partner capital, three sources told affiliate title Buyouts.

The commitments came from individual partner capital, rather than from one of Tiger’s funds or the balance sheet, a source said.

The deal, which has been in the market since at least earlier this year, is separate from the widely reported “strip sale” Tiger has been running to sell stakes in direct assets. The LP stakes deal, which is expected to be about $400 million, has been approaching final close with Lexington Partners as the sole investor, sources said.

Spokespeople for Tiger Global and Lexington declined to comment.

Details are vague, but in general Lexington agreed to take over unfunded commitments in the LP stakes, which are said to be 50 percent or more uncalled, sources said. Lexington will make future capital calls, and any proceeds from the funds, including from funded commitments, will flow to Lexington up to a threshold, and then flow to Tiger, sources said.

The return for both firms will depend on how assets in the funds perform in the future, though Lexington also will collect a preferred return each time it makes a capital call, minimising its risk, the sources said. Lexington is paying very little – possibly nothing – to take over the unfunded stakes, a source said.

“It’s hyper-diversified, with a lot of unfunded commitments,” a secondaries market professional who has seen the deal told Buyouts. “Lexington makes money off the capital calls, they pay the unfunded portion… if the unfunded goes into a good environment and they do well, it’s a win-win for everyone.”

The Information reported in April that Tiger partners committed at least $80 million to VC funds including Better Tomorrow Ventures, Chapter One Ventures and Moxxie Ventures.

It’s not unusual for private equity or venture managers to spend some of their wealth on making LP commitments to funds they like. In this case, Tiger partners committed to newer funds to get access to dealflow the larger fund may not have seen, sources said.

Tiger has turned to the secondaries market to try and generate liquidity for LPs in older funds as it works to raise its next flagship pool targeting $5 billion. The firm earlier this year lowered the target on Fund XVI to $5 billion from $6 billion, already a steep decline from the prior flagship, Wall Street Journal reported in February. Tiger reported raising just over $2 billion for its 16th fund from 283 investors, according to a Form D fundraising document filed earlier this month.

It’s also working with Evercore on a large “strip sale” of stakes in start-up assets. The total size of the transaction could be variable, depending on what trades. As well, a sale may not happen if the discount demanded by buyers is too steep, Buyouts previously reported.

Secondaries pricing on VC funds fell in a range of 63 to 68 percent of net asset value in the first quarter, according to a quarterly secondaries volume report from PJT Park Hill.