Is the Providence stapled deal ‘North America’s BC Partners’? Is it the brand-name deal which shows that GP-led processes are signals of smart fund management, rather than cries of distress? Some think so.
Secondaries Investor revealed on Monday that Canada Pension Plan Investment Board is the lead backer of a stapled tender offer on Providence Equity Partners’ $5 billion, 2011-vintage fund. The pension, with other buyers, is offering limited partners a 3 percent premium to NAV for their stakes. They are pledging also a commitment to Fund VIII, which is in market seeking $5 billion.
Despite the size of the US secondaries market, it has long lagged Europe in terms of the size and complexity of its GP-led deals, and the calibre of manager willing to do them. The US market accounted for 66 percent of all secondaries deals in 2017 but only 40 percent of GP-led, according to data from Greenhill.
In March we suggested a few reasons, including the European GPs’ greater need to crystallise carry, the watchful glare of the Securities and Exchange Commission and the booming US public equities market, which boosted portfolio company valuations and gave US GPs more exit options than their European counterparts.
It’s not clear what, if anything, has changed to bring a decent brand like Providence to market, but it’s certainly not underperformance. Fund VII has achieved an internal rate of return of 20.5 percent and net multiple of 1.4x as of end-September 2017, according to performance data published by Employees’ Retirement System of Rhode Island.
"In terms of a really brand-name GP – good track record in the fund – this is really the first of its kind [for North America],” a buyer source told Secondaries Investor. “I hope this is an enabler for future transactions like this where GPs don't have a bad stigma of fund recaps or restructurings.”
A common refrain before BC Partners ran a successful process on its ninth fund last year was that it would take one big deal to prise open the GP-led market in Europe. EQT and Nordic Capital have followed suit, suggesting this was true.
The Providence deal (if it closes, of course) could have the same impact.
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TDR Capital is carrying out a single asset secondaries process on its crisis-era fund with Landmark Partners as the likely backer, Secondaries Investor has learned.
The process involves moving the remaining asset in the 2007-vintage €2.1 billion TDR Capital II into a continuation vehicle managed by TDR and backed by secondaries capital, according to two sources familiar with the deal.
It is not clear if Landmark is the sole buyer or whether the deal has closed.
Rede Partners is advising on the transaction, Secondaries Investor understands.
The asset is Stonegate Pubs, a British firm that owns pub chains including Slug and Lettuce and Yates's, according to TDR's website.
Among the investors in TDR Capital II are ICG Enterprise Trust, Quilvest Private Equity and University of Richmond, according to PEI data.
Landmark has backed secondaries processes with TDR before. In 2016 the firm provided a proportion of €835 million in follow-on capital to develop the assets in TDR Capital II and made a stapled commitment to its successor.
On Wednesday Secondaries Investor reported that PAI Partners is also carrying out a single-asset restructuring on its 2005-vintage Fund IV to give more time and capital to Perstorp, a Swedish chemicals producer.
According to research by secondaries advisor Campbell Lutyens, the average secondaries buyer backed between three and four single-asset deals in 2017.
TDR, Landmark and Rede Partners declined to comment.
Campbell Lutyens has made a clutch of senior promotions, including one in its secondaries advisory team.
Annabelle Judd, a London-based secondaries professional, has been promoted to principal, according to a statement from the secondaries advisory and placement firm. She was previously a senior vice-president.
Before joining the firm in February 2017 Judd spent 10 years as an M&A banker at Rothschild, according to her LinkedIn profile.
James Sladden in London, Ryan Mason and Richard Moore in New York and James Shipperlee and Don Yoon in Hong Kong were promoted to principal. All five are in the fund placement team.
The advisory firm and placement agent has been expanding over the past year. In June it officially opened an office in Singapore to complement its Hong Kong outpost. The office is staffed by principal Aiva Sperberga and associate Robin Seng. Around the same time the firm hired Stephen Henderson as a vice-president in its New York secondaries advisory team. He joined after spending six years at investment bank Atlas Advisors.
In March Campbell Lutyens opened offices in Chicago and Los Angeles, pushing the number of US staff to 30 from eight in 2015. Among the senior people in Chicago is head of North American real assets Guillermo Marroquin, who rejoined the firm from Macquarie Infrastructure & Real Assets in January.
Article amended to reflect that Annabelle Judd was promoted from the rank of senior vice-president.
Whitehorse Liquidity Partners is nearing the $1 billion hard-cap on its sophomore preferred equity fund after around seven months in market.
Whitehorse Liquidity Partners II has raised $975.4 million, $310 million of which came through an offshore vehicle, according to filings with the Securities and Exchange Commission.
The fund has attracted commitments from 59 investors, the filing noted.
Fund II launched in January with a $750 million target and held an $836 million close in April, Secondaries Investor reported. Investors include Alaska Permanent Fund, which committed $50 million, and Montgomery County Employees’ Retirement, which committed $17 million.
The firm’s debut fund, Whitehorse Liquidity Partners I, reached its $400 million hard-cap in May last year. The fund was oversubscribed within two quarters of launching, Secondaries Investor reported.
Whitehorse was founded by former Canada Pension Plan Investment Board secondaries head Yann Robard. In September Giorgio Riva, a principal with CPPIB's secondaries and co-investments team, joined Whitehorse as a partner.
The firm targets preferred equity investments in private equity portfolios on the secondaries market, making transactions with institutional investors wanting to exit their fund stakes, funds of funds wanting to create distributions for their limited partners and secondaries buyers interested in financing portfolio purchases.
A survey published in February by 17Capital, whose latest fund raised €1.2 billion for preferred equity investments, found that 67 percent of LPs have used or would consider using an alternative to the secondaries market, such as preferred equity or debt tranches.
Whitehorse could not be reached for comment.
Lexington Partners has amassed at least three-quarters of the target for its ninth dedicated secondaries fund and is gearing up to hold a first close, Secondaries Investor has learned.
The New York-headquartered firm is preparing to hold the first close on between $9 billion and $10 billion for Lexington Capital Partners IX after the summer, according to two sources familiar with the matter.
The firm registered Fund IX in Delaware in February, according to a public filing. It is understood the fund’s target is $12 billion.
Minnesota State Board of Investment’s investment advisory council recommended a $150 million commitment at its 12 February meeting, pending approval from the state board of investments, according to the pension’s website.
Lexington’s last secondaries fund was its fourth mid-market vehicle which targets US mid-sized US buyout funds that are less than 50 percent invested. It closed above target on $2.66 billion in September.
The firm's previous flagship secondaries fund, the 2014-vintage Lexington Capital Partners VIII, closed above its $8 billion target on $10.1 billion, according to PEI data. The fund delivered a 29.8 percent net internal rate of return and a 1.3x net multiple as of 30 September, according to a performance document from Minnesota State Board of Investment.
At least six of the top 10 firms in Secondaries Investor's SI 30 ranking of the biggest secondaries fundraisers are understood to be in market with private equity secondaries vehicles seeking a combined $51.5 billion. These include Ardian, Strategic Partners, Coller Capital and Landmark Partners. HarbourVest Partners is understood to be speaking to LPs about its Dover Street IX secondaries fund and is expected to seek $6.5 billion when it formally launches this year, as Secondaries Investor reported on Monday.
In June Lexington said its founder Brent Nicklas was to step aside from day-to-day running of the business, with Wilson Warren becoming president in a newly created position. Marshall Parke, head of non-US activity who joined the firm in 2000, was to become vice-chairman, with Warren and non-US secondaries head Pal Ristvedt becoming co-chairs of the firm’s secondaries investment committee.
Lexington Partners declined to comment.
— This report was updated to show at least six of the top 10 secondaries firms are in market seeking a combined $51.5 billion for dedicated vehicles.
PAI Partners is running a secondaries process to move the remaining asset in its 2005-vintage fund into a continuation vehicle, Secondaries Investor has learned.
The Paris-headquartered buyout firm wants to move Swedish chemicals maker Perstorp from its €2.69 billion PAI Europe IV fund into a new vehicle managed by PAI and backed by secondaries capital, according to three sources familiar with the matter.
Investors have approved the process and PAI is seeking a syndicate of buyers to back the vehicle, two of the sources said.
It is understood that PAI is not using an advisor on the transaction.
PAI acquired Malmo-headquartered Perstorp, which produces chemical additives for the resins and coatings industry, in December 2005, according to PAI'S website. Its value at acquisition was SKr9.2 billion ($1 billion; €873 million).
Limited partners in PAI IV include Pantheon, Quilvest Private Equity, Blackstone Strategic Partners and Willowridge Partners, according to filings with the UK's Companies House.
Stakes in PAI IV changed hands in January when the pension fund of bankrupt camera giant Eastman Kodak Company sold a portfolio of stakes to Pomona Capital, UK regulatory filings show.
Paris-headquartered PAI is investing its PAI Europe VII vehicle which closed in March on €5 billion, exceeding its €4 billion target, according to PEI data.
The deal is the latest in a string of single-asset fund restructurings. The average secondaries buyer completed between three and four such deals last year, according to research by Campbell Lutyens.
PAI declined to comment.
Goldman Sachs's earnings during the second quarter of this year were driven by "significantly” higher performance fees from sales of stakes held in the investment bank's 2009-vintage secondaries fund.
Secondaries sales from the firm's $5.5 billion Vintage Fund V helped drive net revenues in the bank’s investment management division up 20 percent on the same period last year, Goldman Sach’s executive vice-president and chief financial officer Martin Chavez said on a Q2 earnings call Tuesday.
“Harvesting” from Vintage Fund V had triggered a “significant” upsurge in what the group calls incentive fees, which came in at $316 million, Chavez said. This figure is almost four times the $81 million in performance fees posted by the private equity side of the firm for the same period last year.
Overall, the investment management division booked net revenue of $1.84 billion.
Goldman has previously bought stakes held in secondaries funds. In 2016, it emerged as the buyer of a tail-end portfolio of stakes from Partners Group's 2007-vintage secondaries fund worth around €800 million, as well as a second portfolio worth under $1 billion held in another Partners Group vehicle.
On the financial advisory side, Goldman posted its highest volume in a decade, advising on 125 deals – a 37 percent increase on the first quarter, reflecting stronger M&A. Chavez said the firm will continue to hire new bankers and expand its client coverage.
Non-compensation expenses rose 24 percent to $2.66 billion, with the banking giant setting aside more cash to deal with payments flowing from litigation and regulation.
The firm also announced that David Solomon will take over from Lloyd Blankfein as president on 1 October this year and will assume the role of chairman in 2019.
Goldman Sachs's AIMS unit is investing Vintage VII, which raised $7.12 billion last year.
The California Public Employees' Retirement System is looking for law firms help it make and exit investments, according to a request for proposals on its website.
The pension fund, which has $27 billion of private equity assets, is seeking between five and 10 law firms to advise it in "work-out" situations for its older funds, the RFP notes. The firms will also offer legal advice on investing in funds, and making co-investments and direct investments. This includes law firms with experience of buying or selling fund interests on the secondaries market.
"Work-out" situations include instances of general partner under-performance, key-person events, or breaches of contract or fiduciary duty, the RFP notes.
The successful firms would work across the pension's private equity, infrastructure, trust level portfolio management and opportunistic strategies asset classes.
The ideal candidate will be familiar with the terms and concepts found in private equity partnership and limited liability agreements, have experience outside of private equity, including in hedge and credit funds, and be experienced enough to act as lead negotiators on CalPERS contracts.
"Additionally, CalPERS is interested in ideas to combat the excessive complexity found in private fund legal documents," it added. "Finally, CalPERS is interested in new and realistic ideas to increase the alignment of interests between CalPERS and its investment partners."
CalPERS’ current counsel contracts expire 31 December 2018. The new contracts will be for a five-year term beginning 1 January 2019.
The pension fund's private equity portfolio fell short of its benchmark over the past 12 months ending on 30 June, reporting a preliminary 16.1 percent return for the 2017-18 fiscal year, 250 basis points below its benchmark index, sister publication Private Equity International noted yesterday.
Lexington Partners' latest dedicated secondaries fund has received the backing of a long-time investor.
Anne Arundel County Retirement and Pension System, which has $1.68 billion in total assets under management, approved a $25 million commitment to Lexington Partners IX, according to minutes from its May board of trustees meeting. Advisor NEPC recommended the investment.
The Maryland pension invested $15 million in Lexington's 2014-vintage Fund VIII and the same amount in its 2010-vintage Fund VII, according to minutes from its January 2017 meeting. It has a 9 percent private equity target allocation.
Lexington Partners IX has been in market since February and is seeking $12 billion. Investors so far include Minnesota State Board of Investment, which committed $150 million, and University of Houston System, which committed $10 million.
In June Brent Nicklas, who founded Lexington in 1993, announced that he would relinquish control over the day-to-day running of the firm. He will be replaced by former US secondaries head Wilson Warren, who will become co-chair of the firm's secondaries investment committee alongside non-US secondaries head Pal Ristvedt.
Lexington is one of a handful of large secondaries players to return in 2018, with Ardian, Coller Capital, HarbourVest Partners and Blackstone's Strategic Partners among those in market.
Canada Pension Plan Investment Board has emerged as the lead backer in a stapled tender offer involving Providence Equity Partners' 2011-vintage fund and its latest vehicle, Secondaries Investor has learned.
The Toronto-based pension has offered limited partners in the $5 billion Providence Equity Partners VII a 3 percent premium to net asset value as of 31 March, according to two sources familiar with the matter.
HarbourVest Partners and StepStone are also set to invest in the deal, the two sources said. It is understood that Park Hill is advising on the deal.
LPs have until 20 July to inform Providence if they would like to sell their stakes. The buyers will commit to Providence Equity Partners VIII on a 2:1 secondaries to primary ratio. It is understood that Fund VIII, which launched in April last year, has raised more than $4 billion of its $5 billion target.
Investors in Fund VII include Florida State Board of Administration, Massachusetts Pension Reserves Investment Management Board and Fubon Life Insurance, according to PEI data. Fund VII delivered a 24.2 percent net internal rate of return and a 1.7x net multiple as of 31 March, according to a source familiar with the vehicle's performance.
Fund VIII will target a diversified portfolio of 15 to 20 investments and will invest between $150 million and $500 million in companies with enterprise values between $500 million and $2 billion, according to an investment presentation for the Texas Municipal Retirement System on 22-23 March.
PE Hub first reported that Providence was running a tender offer process on Fund VII.
Providence has at least $57 billion in assets under management across private equity and private credit, according to its website. The firm specialises in equity investments in media, communications, education and information industries.
CPPIB, Providence, HarbourVest and StepStone declined to comment. Park Hill did not return requests for comment by press time.
ICG has closed a deal to restructure a 2006-vintage Central and Eastern Europe-focused fund, almost three months after Secondaries Investor reported the fund's manager had restarted the process.
The London-headquartered investment firm's strategic equity team backed the deal in which assets from New Europe Partners II will be moved into a four-year continuation vehicle, according to two sources familiar with the matter.
New Europe Partners II, which is managed by PineBridge Investments spin-out ForeVest Capital Partners, holds five assets and has a net asset value of €218 million, according to one of the sources. It is unclear which valuation date the deal is based on.
The transaction closed on Friday and Park Hill advised on the process.
ICG has closed at least three GP-led transactions in recent weeks. In May the firm teamed up with Committed Advisors to partially free the captive private equity arm of Japanese conglomerate Orix Corporation in a $120 million deal, as Secondaries Investor reported. The firm also joined Goldman Sachs Asset Management to back the spin-out of Chinese investment firm ZZ Capital International's private equity team in a deal announced in June.
New Europe Partners II originally closed on €523 million and was managed by PineBridge, according to PEI data. Four senior managers of PineBridge New Europe Partners spun out in 2016 to form ForeVest with a focus on growth equity investments in mid-market companies across the CEE region.
The five assets in NEP II are home care services provider Promedica24, automated lockers technology provider Integer, lead-acid battery recycler Orzel Bialy, forex brokerage firm TMS Brokers and employment agency Work Service.
By value, more than 85 percent of LPs in NEP II approved the deal and 70 percent of LPs in total decided to sell their stakes, one of the sources said. The transaction resets carried interest and other incentives for ForeVest, which has doubled its GP commitment to the assets through the deal.
Investors in New Europe Partners II include the European Bank for Reconstruction and Development, which committed €50 million, according to PEI data.
Private equity funds focused on Central and Eastern Europe were hit hard by the global financial crisis of 2007-08. Fundraising for CEE private equity fell from €4 billion in 2007 to €2.51 billion in 2008 and €378 million in 2009, according to data from industry body InvestEurope.
ICG declined to comment. ForeVest and Park Hill did not return requests for comment.
Partners Group has boosted its staff numbers by around 5 percent during the first half of 2018 to meet growing client demand.
The Zug-headquartered investment firm could reach up to 150 hires by the end of the year to match its anticipated AUM growth for the year, according to an investor presentation on Thursday. It has just under 1,100 employees.
Staff numbers rose across all asset classes at mostly junior levels, with a particular focus on value creation, due diligence and dealflow.
Partners Group deployed $1.9 billion in secondaries investments during the first half, up from $1 billion in the same period last year.
Overall the firm deployed $7.7 billion in private markets on behalf of its clients in the first half, including $2.8 billion in direct equity and $1.8 billion in private debt. The firm is in market with PG LIFE, an impact fund targeting global social and environmental challenges by investing only in line with the United Nations Sustainable Development Goals.
The firm received €6.2 billion in new commitments during the first half of the year, of which €2.4 billion were in private equity, the investor presentation noted. Its total private equity assets rose 7 percent to €33.9 billion as of 30 June, with AUM across all asset classes reaching €67.1 billion.
The firm expects investor demand of between €11 billion to €14 billion for the full year.
“The most important drivers for our AUM remain the structural growth in institutional AUM globally and the rising allocation to private markets of these institutional investors,” Philip Sauer, co-head of group finance and corporate development, told investors.
“We clearly benefited from this development and continue to build our investment platform as a pure play private markets firm. However, this platform build-out comes with limited scalability as you can see; we simply need more resources to source, transact and create value on our long-term assets.”
The increased emphasis on value creation comes as European Central Bank asset purchases come to an end and amid inflation pressures, according to the investor presentation.
HarbourVest Partners is preparing to launch its 10th flagship secondaries fund and is already speaking to investors about the vehicle, Secondaries Investor has learned.
The Boston-headquartered investment firm expects to raise as much as $6.5 billion for Dover Street X, according to two sources familiar with the matter. Co-investment vehicles and separately managed accounts would account for a significant proportion of the total, one of the sources said.
A HarbourVest investment document prepared for Californian public pension Imperial County Employees' Retirement System in November and seen by Secondaries Investor shows the firm expected to formally launch Dover X in the second half of this year. The document also shows the firm's Real Assets Fund IV, a secondaries vehicle, will launch in the second half.
At least six of the top 10 firms in Secondaries Investor's SI 30 ranking of the biggest secondaries fundraisers are understood to be in market with private equity secondaries vehicles seeking a combined $51.5 billion. These include Ardian, Strategic Partners, Coller Capital and Landmark Partners and Lexington Partners.
HarbourVest is investing its 2015-vintage Dover Street IX fund which held its final close on $4.77 billion in November 2016 after almost a year and a half of fundraising, according to PEI data. Investors in Dover IX include Michigan Department of Treasury with $100 million, Houston Firefighters' Relief and Retirement Fund with $50 million and Nebraska Investment Council with $50 million, according to PEI data.
HarbourVest declined to comment.
When Stafford Capital Partners was appointed to turn around the Phaunos Timber Fund in June 2014, it faced a big challenge. The appointment was welcomed by the board as being in shareholders' "best interests".
Fast-forward four years, and the situation is rather different. Stafford resigned as manager in August 2017, but is now looking to buy the fund wholesale. The firm confirmed an unsolicited bid valuing the portfolio at $244.2 million last week. This time Phaunos's board is less impressed. The company described Stafford's move as "highly opportunistic" and urged shareholders "to take no action at this time".
Secondaries firms have been engaged in hostile takeover bids before – two years ago HarbourVest Partners won the battle for London-listed SVG Capital in a five-week saga.
In Stafford's case, Phaunos's attitude appears somewhat ungrateful. When it was still running the fund, Stafford delivered on parts of its brief: it rebalanced the portfolio away from high-risk assets and reduced costs. That is the view of Stafford partner Stephen Addicott, speaking to sister publication Agri Investor last week, but it is also shared by some of the fund's more adversarial shareholders – activist investor LIM Advisors said last year Stafford had done "a good job at reorganising the portfolio".
Some investors were frustrated by the time it took Phaunos to produce stable income – though that was starting to happen by the end of Stafford's tenure. Others simply thought the 4 to 5 percent target yield on the share price was not high enough. In a continuation vote in June 2017, a majority of shareholders – led by LIM Advisors – voted against extending the fund for another five years. Phaunos's board swiftly started "an orderly realisation process for the company".
The investors' decision probably came down to their limited patience. Phaunos's portfolio is a mixed bag – with one mature asset, New Zealand's Matakari forest, and a clutch of immature ones in South America. To be worthwhile, the latter need to be held until they mature. What's more, Addicott argues, "it's the development of markets that will bring real value to those assets. The difficulty potential buyers have in looking at these assets is 'how am I actually going to sell my end product, my wood?'"
Had it been given more time to work on those assets, Stafford may have succeeded in making them more profitable. Now that it is no longer in charge, its knowledge of those problems places it in a good position to buy the whole lot. As does its longer time frame – Stafford intends to use SIT VIII, a 12-year secondaries vehicle, to fund the acquisition.
The firm also argues that its offer brings value to shareholders, because the process should be quicker – three to four months versus 14 to 20 months for Phaunos's – and has a premium on the shares' value (11 percent to closing on June 4). It covers more assets than Phaunos's auctions, and it is fully funded.
So why is the board giving the offer the cold shoulder (so far)? Its feedback on Stafford's bid may not come before next month, which Addicott finds "disappointing" (Richard Boléat, Phaunos's chairman, declined to comment beyond the company's release). For its part, Phaunos says Stafford refused to take part in the official process and seems to regret it. In its response to the offer, Phaunos reiterated its "commitment to balance maximising the value from the company's investments with making timely returns of capital to shareholders".
Given that Stafford's offer clearly promises faster execution, we can only infer that Phaunos hopes to generate greater proceeds through an "orderly" auction, perhaps by selling the portfolio in several chunks. In which case, it may use the next few weeks to drum up further appetite for the assets – possibly because early expressions of interest, received before Stafford's offer, are not yet solid enough to negotiate with the secondaries firm on a strong footing. Phaunos's board describes them as "encouraging". How encouraging they really are will become apparent once the board makes its views known on Stafford's bid.
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Euro Private Equity, an affiliate of Natixis Investment Managers, has held the first close on its sophomore secondaries fund.
Select Opportunities II raised €199 million of a €250 million target, according to a statement from the firm. New investors account for 43 percent of capital raised so far, Asian investors for 15 percent.
Euro PE's Select Opportunities funds make secondaries deals and co-investments in small and medium-sized European companies, the statement noted.
“This combined investment approach aimed to make full use of two strategies that dovetail very neatly – maximising the internal rate of return on secondaries deals and the portfolio’s multiple on co-investment, while at the same time reducing the fund’s duration and the J curve,” said Eric Deram, founder and managing partner.
The firm's 2014-vintage debut fund Select Opportunities I raised €130 million, the statement noted. It has 20 holdings and has a net IRR of more than 20 percent.
Euro PE has €2.6 billion in assets under management across private equity, infrastructure and mezzanine funds, according to its website. Natixis acquired the firm in 2013.
Natixis has just over $1 trillion in assets under management, according to its website, four percent of which is classed as alternative/structured products.
Secondaries fundraising in the first half of this year, measured by funds holding their final close, was down $11.7 billion on the same period last year and hit the lowest first-half total in five years, Secondaries Investor reported.
Ardian, Coller Capital, Lexington Partners and Strategic Partners are among those seeking dedicated secondaries capital, alongside Glendower Capital and ICG.
Goldman Sachs Asset Management has emerged as the buyer of one of the largest limited partnership portfolio sales.
The New York-headquartered firm acquired around $2 billion of private fund stakes from sovereign wealth fund Government of Singapore Investment Corporation, according to two sources familiar with the matter.
Greenhill Cogent advised on the sale, Secondaries Investor understands.
The composition of the portfolio is unclear.
PE Hub reported in April that GIC was selling a $2 billion portfolio.
GIC and Goldman have previously been partners on secondaries deals: in January they backed the restructuring of two technology-focused private equity funds managed by Vector Capital in a deal worth $450 million, Secondaries Investor reported.
Some of the largest LP portfolio sales include the California Public Employees' Retirement System's $3 billion sale of legacy real estate fund stakes to Strategic Partners in 2015, Abu Dhabi Investment Authority’s 2014 sale to Ardian and GM pension’s 2012 sale to China’s SAFE and Lexington Partners, worth between $1.5 billion and $2 billion.
Goldman is investing its Vintage VII fund, which held its final close on $7.12 billion in July last year, according to PEI data. Among the deals it has closed in recent months are the $325 million spin-out of Chinese captive private equity team Aretex, a single-asset restructuring on DH Private Equity Partners' fourth fund, and the GP-led restructuring of Nordic Capital's 2008-vintage fund, which involved €2.5 billion of assets being moved into a continuation vehicle.
GIC had $390 billion in assets under management as of June, according to the Sovereign Wealth Fund Institute. Of this, 9 percent of which is dedicated to private equity and 7 percent to real estate, according to its website. It has a long-term allocation to private equity of between 11 percent and 15 percent.
Goldman and Greenhill declined to comment. GIC did not return a request for comment by press time.
"Two Cologne-based private equity specialists with a long and successful shared history are reunited."
That was how CAM Private Markets, a German alternative asset manager with €1 billion under management, described its agreement to acquire DB Private Equity – essentially what was left of Deutsche Asset Management's primary private equity business.
For Deutsche AM, the March announcement was the culmination of several years of mergers and acquisitions, personnel changes and internal ructions that pushed its private equity group to the margins.
For CAM, it was an opportunity to see if its chief executive still has the golden touch with investors he demonstrated when he founded DBPE's forerunner, Cologne Asset Management, nearly 20 years ago.
The story of DBPE is a complex one. It managed Deutsche AM's private equity and infrastructure funds of funds and separately managed accounts. The core of its staff came from Cologne Asset Management, founded in 1999 by Rolf Wickencamp, chief executive and founder of Wickencamp Consulting, which owns CAM Private Markets.
Cologne Asset Management was sold in 2008 to private bank Sal Oppenheim, which also acquired Munich-based VCM Capital Management, another funds of funds manager. This was part of a wave of consolidation in a German market struggling to raise capital in the wake of the financial crisis.
In autumn 2009 Deutsche Asset Management bought Sal Oppenheim as part of a €1 billion deal that saved the lender from collapse. The constant changes caused disquiet among investors.
"Investors don't like change," said one GP focused on the DACH market. "They want consistency and continuity. Think about the number of entities involved, fundamentally good entities, which ended up falling into the arms of Deutsche Bank, a major corporate."
In April 2010 the assets acquired from Sal Oppenheim, Deutsche AM's secondaries team, and the private equity group from Deutsche's private wealth management business were merged and given the name DBPE. They accounted for around €6 billion of assets under management.
Around the same time DBPE was placed under the management of Chris Minter, who came to the role from an internal corporate development role, head of corporate investments. According to a source who was there, his lack of direct experience in private equity made clear the rudderless-ness inherent in DBPE's founding. Minter left the bank in October 2012, taking up a corporate development position at reinsurer Swiss Re.
At parent level, Deutsche Bank's head of global equities Kevin Parker lost out to his fixed-income counterpart Anshu Jain in the battle to lead the newly combined team, with Parker becoming head of asset management. The bank underwent a strategic review in 2011, the results of which led it to try, and fail, to sell several "non-core" parts of its asset management business, with backing from Guggenheim Partners.
The chopping and changing has caused disquiet among DBPE's employees. Several left, some, in 2016, for CAM Private Markets, including CAM's co-founder Frank Albrecht and vice-president Daniel Czimer, according to their LinkedIn profiles. DBPE had been earmarked for sale for at least a year prior to CAM Private Markets' intervention, according to a source who was there.
"The Cologne business had been loss-making for a while and within the Deutsche structure there was no obvious path to raising a lot of money," the source said. "The team tried to spin out by themselves in the past. Obviously they had an ongoing relationship with [Rolf] Wickencamp from the days when he was their boss."
Now that DBPE has been reunited with Rolf Wickencamp, the market awaits his next move. Sources told PEI Wickencamp is well connected with German institutional investors and that he has won several large separately managed accounts in recent years. In addition to his role in founding DBPE, he has served as chief financial officer of Liechtenstein Global Trust, the parent of LGT Bank and LGT Capital, according to his LinkedIn profile.
For DWS, Deutsche Asset Management's rebranded private equity business, the sale of DBPE was part of a broader strategic shift from primary to secondaries private equity, which also included the sale of its US Private Equity Access Fund Platform to iCapital Network in September.
Since its secondaries team's August spin-out, DWS has been on a rebuilding mission. In December it hired former global head of secondaries advisory at Credit Suisse, Mark McDonald, as its global secondaries head and in January appointed Daniel Green, the senior director of private markets for EMEA & Asia at Meketa Investment Group, as EMEA head of private equity secondaries. It is understood the firm will seek capital from third-party investors at some point in the near future.
As for primary fund of funds investing, DWS has no immediate ambitions to return to this strategy, according to a source familiar with the firm.
For both sides, the deal represents a new start. DWS can double down on its new secondaries business, while DBPE, under new ownership, can re-establish itself as a significant force in the DACH region.
Capital Dynamics has acquired an Italian private equity funds of funds manager after buying part of its portfolio last year.
The Swiss-headquartered alternatives manager, which has $15 billion in assets under management, has agreed to acquire the entire share capital of Advanced Capital SGR for an undisclosed sum, according to a statement, in a deal set to close during the third quarter.
The source of funding for the deal is not clear.
In December 2016, the Milan-based firm sold a majority of its €321 million, 2006-vintage ACII fund of funds to Capital Dynamics in a process run by UBS, Secondaries Investor revealed. The portfolio contained stakes in 26 buyout funds and had a net asset value of around $145 million as of 30 September.
Founded in 2004, Advanced Capital has $1 billion in assets under management across four generalist private equity funds of funds, a real estate fund and an energy fund, according to its website.
AC IV was the first of Advanced's funds of funds to invest in secondaries and make co-investments, according to the its UN Principles for Responsible Investing report from 2014.
Advanced Capital's chief executive is Robert Berlé, co-founder of one of Italy's first merchant banks, ABK, formerly Arca Merchant. Its chairman is Robert Tomei, a former advisor on alternative investments at Merrill Lynch, according to the firm's website.
Capital Dynamics' last dedicated secondaries fund hit final close on $564 million in July 2016, exceeding its $350 million target, according to PEI data.
A follow-up fund was registered in Luxembourg in March.
Italy has been the site of a number of secondaries transactions over the past year, including the spinouts of Fondo Italiano d'Investimento and Banco Popolare de Vicenza.
Two long-standing Strategic Partners professionals have left the firm, Secondaries Investor has learned.
Brian Kolin and Boriana Karastoyanova were both New York-based directors who joined Credit Suisse Strategic Partners before its 2013 acquisition by Blackstone. Kolin's last day was Friday, according to two sources familiar with the matter.
It is unclear when Karastoyanova left the firm.
Both were investment committee members for "each of Strategic Partners' funds", according to archived versions of the firm's website. Each has led Strategic Partners' European operations – Karastoyanova spent two years in London between 2006-08, followed by Kolin until 2010.
Kolin started in 2008 and Karastoyanova in 2002, according to their LinkedIn profiles.
Strategic Partners is seeking $8 billion for Strategic Partners Fund VIII, a dedicated secondaries vehicle, as Secondaries Investor reported in May. In April the firm raised $1.75 billion for its second real assets secondaries vehicle, the largest pool of capital ever raised for the strategy, Secondaries Investor reported.
Strategic Partners is led by Stephen Can and Verdun Perry. The firm has around 20 staff based in New York, London and San Francisco, according to its website.
Blackstone declined to comment.
HarbourVest Partners is the proposed buyer of a GP-led process on a crisis-era Spanish buyout fund, Secondaries Investor has learned.
Investors in ProA Capital's 2009-vintage ProA Capital Iberian Buyout Fund I are being given the option to cash out their stakes to the Boston-headquartered investment firm or roll over into an extension vehicle, according to two sources familiar with the deal.
The transaction is expected to close as early as in July and is priced at a premium, Secondaries Investor understands. Fund I, which raised €250 million by final close in 2008, has around €200 million in remaining net asset value.
Greenhill Cogent is running the process, according to a separate source.
Fund I holds five remaining assets, including bicycle components manufacturer Rotor, healthcare provider Hospital de Llevant and ICT firm Ibermatica, according to Madrid-headquartered ProA's website.
Investors in the fund include AP Fonden I, the European Investment Fund and ATP Private Equity Partners, according to PEI data. ProA held the final close on a follow-on fund in 2014. ProA Capital Iberian Buyout Fund II raised €350 million, exceeding its target of €325 million, after around seven months in market.
The firm makes investments in companies between €30 million and €500 million in size, according to its website. It focuses mainly on Spain and can invest internationally.
The existence of the process was first noted by Spanish financial news website Capital Riesgo in February.
ProA, Greenhill and HarbourVest declined to comment.
Second Alpha Partners, a direct secondaries firm, has raised $75.6 million for its latest dedicated fund.
The New York-headquartered firm, which invests in mature venture, growth equity and mid-market targets in the technology, media and telecoms sectors, has already invested $14.5 million of Second Alpha Partners IV along with an additional $6.5 million in co-investments, according to a statement.
Fund IV has taken positions in advertising technology firm OpenX, software developer Code42 and webcasting firm ON24, among others, the statement noted.
The vehicle had been in the market for around 15 months. The 2013-vintage Fund II raised $6.28 million, according to PEI data. Details of Fund III are unclear.
Second Alpha was founded by Jim Sanger, a former managing director with Deutsche Bank's venture capital arm, and Richard Brekka, who spent 14 years with Dolphin Equity Partners. Dolphin's portfolio was acquired by Second Alpha in 2013, becoming the basis for its debut fund Second Alpha Partners I.
In addition to direct secondaries deals, the firm will purchase portfolios or strips of assets, and will back restructurings and recapitalisations, according to its website.
The firm has offices in New York and Boston.
ICG and Committed Advisors have backed a process that will partially free the captive private equity arm of a Japanese conglomerate, Secondaries Investor has learned.
The secondaries firms acquired 40 percent of the portfolio of Orix Capital Partners, according to a source familiar with the deal. The portfolio, which was originally acquired using the balance sheet of parent Orix Corporation, has been placed in a new vehicle backed by ICG, Committed Advisors and the parent.
The structure will help Orix Capital Partners diversify its investor base, Secondaries Investor understands. The firm will invest alongside ICG and Committed Partners with the eventual goal of raising third-party capital.
ICG and Committed Advisors paid around $120 million in total for their share. ICG accounted for a majority of the investment and Orix Corporation maintains operational control. The deal closed in May.
The portfolio comprises two US-located infrastructure services companies: traffic control and pavement marking company RoadSafe and underground water infrastructure maintenance firm Hoffman Southwest Corporation.
Terry Suzuki, president and chief executive of Orix Capital Partners, told sister publication Private Equity International in August about its plans to raise third-party capital as soon as this year.
"Orixis still rather new to the US investor community... So we’d like to demonstrate our performance first,” he said.
The deal is similar to another recently backed by ICG in conjunction with Goldman Sachs Asset Management: the $325 million spin-out of Aretex from Chinese holding company ZZ Capital.
ICG invested in both deals through its strategic equity unit. It is in market seeking $1.6 billion for its latest dedicated secondaries fund, Secondaries Investor revealed in April. Committed Advisors is investing its €1.03 billion third dedicated secondaries fund, which closed in April last year.
Orix Capital Partners makes investments of between $75 million and $200 million in infrastructure services, industrials and business services segments, according to its website.
Its president and chief executive is Terry Suzuki, a former partner at KPMG in the US and co-chief executive of Cerberus Japan, according to his LinkedIn profile.
Founded in 1964 Orix Corporation invests in businesses, aircraft, insurance policies, renewable energy infrastructure and vehicles, among other asset types. It has around $88 billion in assets under management, according to its 2017 annual results.
ICG declined to comment. Orix Capital Partners and Committed Advisors did not return requests for comment.
A hostile bid for a listed vehicle? Is this the beginning of another campaign, like the 2016 battle between SVG, HarbourVest and others for the former's £806.6 million ($1.08 billion; €914.1 million) portfolio?
Stafford Capital Partners has confirmed its ambition to acquire all of Phaunos Timber Fund through a hostile bid that values the UK-listed vehicle at $244.2 million.
The all-cash offer would be funded by the firm’s SIT VIII secondaries fund, which closed on $612 million in May. It comes as Phaunos is being wound up after shareholders decided against continuing it in June last year, when Stafford was still the fund’s manager.
The Phaunos board, which initiated a formal sales process in August and received initial expressions of interest at the end of last month, does not seem particularly impressed. Reporting “pleasing” progress on the process to date, it responded to Stafford’s announcement by urging shareholders “to take no action at this time”.
But Stephen Addicott, a timber partner at Stafford, told sister publication Agri Investor that the firm had met 75 percent of Phaunos’s total shareholding before the formal offer was released. He declined to provide specific information on shareholders’ reactions since the bid was announced but noted that “we wouldn’t have gone forward with a formal offer unless we felt there was a good chance of success”.
Phaunos’s chairman Richard Boléat, who Agri Investor also contacted, declined to comment beyond the statement.
Rules of engagement
Stafford now has to file formal offer documents between 18 July and 27 July, after which Phaunos’s board has 14 days to post a response stating its view on the secondaries firm’s proposal.
Addicott appeared frustrated that it would take that long to get a feedback, or at least an indication whether Stafford’s bid is the only offer for the whole of the assets and how it compares with other proposals.
“The board have indicated that they’re running a sale process, that they would like some level of price discovery. We understood that they were expecting expressions of interest to come in by the 28 June. So we were hoping that they would now be in a position to have some level of price discovery, so that they can talk to us about our offer,” he said.
“We met with the board prior to our initial announcement of our intention to put forward an offer, but we have not met with the board since. And we would be willing to. Frankly we were quite surprised that the board aren’t considering our offer seriously enough to ask for a meeting with us.”
With expressions of interests now received as part of its official process, Phaunos looks set to select parties to go forward with due diligence, a phase Addicott says typically lasts around 12 weeks. He did not think the extra days the board gave itself to ponder over Stafford’s bid would change its position much – “with the exception that they might still be looking to drum up support for the overall sale process that hasn’t come in today”.
Stafford was appointed to turn around Phaunos’s distressed portfolio four years ago. It was making progress – having rebalanced the portfolio away from risky assets and reduced costs – when the vote to determine the company’s future happened.
“We knew it would be a close call,” says Addicott. “We had a number of investors who were interested in continuing on and in holding this in the longer term. And we recognise that there are number of investors who wanted to have an exit option within the shorter time frame than the five-years extension that we were looking for.”
The stakes were made higher by Stafford’s inability to bring large new investors into the vehicle – which Addicott mostly puts down to the uncertainty created by the upcoming continuation vote. “It’s difficult to bring new investors into a listed fund on the premise that it might be wound up within the near future.”
He also thinks the manager did not have quite enough time to build the fund’s track record as a revenue generator, which would have helped convince more investors to stay on. “We were pleased that by the end of the process, we got to a place where it started to look like Phaunos was providing a regular yield. And the other thing there to help with consistent yield was the reduction in the net debt. But those things take time.”
Time is money
Time is now central to the case Stafford is presenting to Phaunos’s shareholders. At $0.49 a share, the price offered represents an 11 percent premium to closing on June 4 (the last day before the start of the offer period). But the main argument Stafford is making is that a swift takeover by the firm will accelerate shareholders’ exit.
The manager even puts a value on the time saved: assuming a timetable of 3-4 months to completion for Stafford, compared to 14-20 months for the official sales process, the firm estimates potential gains at 3-4 cents a share. It also points out its offer is fully funded, and that it covers assets not included in the formal process.
Stafford thinks it would be right for its fund to own the asset, given its knowledge of the portfolio. “We recognise that the New Zealand assets have benefited from increased demand in the Asia-Pacific market, and we still see that continuing in the longer term,” says Addicott. “In regard to the other assets, each of those has their own particular problems. In our time as manager we became familiar with those problems.”
Would buying out Phaunos make the SIT VIII too concentrated on a single position, given the portfolio’s heft? Addicott thinks not. “If it proceeds, it will be a large transaction for the fund. But because the portfolio has diversification across the different assets then we’re comfortable with that sort of transaction size.”
For a strategy based on diversification, the secondaries market has taken an unusual turn.
Last week HarbourVest Partners emerged as lead investor in a $1.9 billion energy fund restructuring. The deal involved forming a fund that acquired the remaining net asset value held in Lime Rock Partners IV, a 2006-vintage vehicle managed by upstream oil and gas investment manager Lime Rock Partners.
The deal is the latest in a string of so-called single-asset fund restructurings. The average secondaries buyer completed between three and four single-asset deals in 2017, according to Campbell Lutyens, a figure the firm's US partner Gerald Cooper described to Secondaries Investor as "pretty astonishing" given that historically the vast majority of secondaries investors only pursued diverse portfolios.
In what situations do these deals make sense? And why are we seeing more of them?
Typically, single-asset restructurings are being employed in situations where one asset in a portfolio requires extra time or capital to reach maximum value and not all limited partners want to stick around, according to Johanna Lottmann, a director in Lazard’s private fund advisory group.
The rationale is strongest where an asset is subject to transfer restrictions, whether through shareholder or banking agreements that would be triggered by a change of ownership. It’s also just a useful way of wrapping up a fund in a timely manner, in line with the expectations of limited partners.
Deals can also, at least hypothetically, be cheaper than taking the M&A route. Secondaries buyers typically have lower return expectations and therefore a lower cost of capital than direct financial sponsors, so might be willing to pay a little more. And from the GP's standpoint, there is the added bonus of being able to maintain control of an asset that you believe still has potential.
The increased popularity of these deals is the natural result; increasingly sophisticated buyers are not as troubled by highly concentrated risk as they used to be. At the same time, it's indicative of the competitiveness of the market and the need to try new things, fuelled by still-cheap financing.
"Traditional LP sales have become much more competitive," says Cooper. "There’s a need to [do] deals where you can expect a little bit more alpha."
While the comfort level with these deals has increased, not all firms have the capabilities to do due diligence right down to company management level in the timeframe required. This is why the most active buyers tend to be those with broad direct investment platforms, such as Goldman Sachs.
Diversification remains a crucial requirement for secondaries buyers but growing numbers won’t let its opposite get in the way of a good opportunity.
What do you think of single-asset restructurings? Let us know: firstname.lastname@example.org
The 'default' term provides for the possibility of a limited partner defaulting on a drawdown request in respect of its commitment. Often there are a range of options available to the general partner in these events. In a default scenario, the manager’s immediate concern is to have the power to draw down funds to make up the shortfall caused by the defaulting investor.
The main three long-term remedies are:
- Forfeiture. If an LP’s interest is forfeited it generally loses any rights to future distributions (other than, perhaps, a deferred right to receive some or all of the amounts it has previously paid to the fund). Its commitment is canceled and the fund size reduces accordingly.
- Forced transfer. The GP can be afforded the right to execute a forced transfer of interests on behalf of the defaulting investor. GPs generally prefer this remedy because it allows a new investor to take on the obligations of the defaulter, therefore avoiding the need to reduce the size of the fund.
- Specific performance. In any event, the manager can bring an action against the defaulting investor for specific performance of its obligations. It is also becoming common for the manager to have the explicit authority to issue further drawdown notices following the default of an investor. While this is generally implicitly within the manager’s powers, it is an express right that lenders to the partnership like to see, given that their primary protection is the manager’s ability to issue drawdown notices. Some investors are seeking limitations on these powers (for example, no drawdown following a default that is more than 50 percent of the initial drawdown). While it is very unlikely that these limitations would be exceeded, they are not generally accepted by GPs as they can materially limit the manager’s ability to obtain financing for the partnership on attractive terms.
Default provisions became an area of scrutiny during the 2007–08 global financial crisis, although there were not many instances of investors defaulting on their commitments. Investors with liquidity or over-allocation issues have tended to take a proactive approach and initiated discussions with GPs early to avoid defaulting. In most cases, investors have preferred to sell their interests on the secondaries market (with the assistance or approval of the GP) rather than risk forfeiture of their interest, so that they can extract value from their investment.
"It is conceivable that a capital-constrained investor could be placed in the invidious position of having to decide which funds’ capital calls to honour and which to default on."
Some LPs like to see the GP having strong powers (such as forfeiture and enforced transfer) in a default situation. This is because they fear that a default by a fellow investor will increase not only their own proportionate share of the partnership, but also increase the risk they are exposed to on investments. This is the case in the short term, but also in the long term if the defaulting investor’s interest is forfeited because the fund size is reduced. It is conceivable that a capital-constrained investor could be placed in the invidious position of having to decide which funds’ capital calls to honour and which to default on — and the strength or weakness of each fund’s default provisions may be a key factor in making that decision.
A GP will, of course, prefer to retain the original fund size (and not reduce it by exercising forfeiture provisions) and so will typically seek to facilitate a transfer of a defaulting investor’s interest. However, investors may wish to see parameters around when a GP can transfer a defaulting LP’s interest, at what price and to whom. LPs subscribing to a fund via a feeder vehicle (such as a fund of funds) usually try to negotiate a provision that allows for their interest to be split on a partial default so that not all of the underlying investors are penalised due to the default of a single underlying investor (whose interest may constitute a small proportion of the feeder vehicle’s interest in the main fund). Overall, it is in both the GP’s and LPs’ interests for the default provisions to ‘have teeth’ and that the principles are widely accepted.
LPs are also increasingly focusing on giveback provisions, which require investors to repay distribution proceeds to the extent that there is a subsequent warranty or indemnity claim by a third-party purchaser of a portfolio company, subject to certain limitations. The repayment of distributions normally creates a new outstanding loan commitment. This can raise concerns among investors as to what might happen if an investor defaults on its repayment obligation and whether other investors would have to make up the shortfall. In theory, the same default provisions apply to that scenario and the defaulting LP risks forfeiture or an enforced transfer.
There are no material differences between jurisdictions in how default provisions are structured in limited partnership agreements, but the ability to effect a transfer on behalf of a defaulting investor (including the enforceability of any power of attorney given to the GP to transfer the interest on behalf of the defaulting investor) and the effectiveness of forfeiture provisions may be different in certain jurisdictions (some of which may deem it to be a penalty and therefore unenforceable.) In some jurisdictions, GPs may not be able to seek the remedy of specific performance for breach of contract.
Ed Hall is a partner in Goodwin's private investment funds team, specialising in fund formation.
This is an extract from the Fund mechanics: operation and management terms chapter from The LPA Anatomised, available here.
Secondaries fundraising in the first half of 2018 was down $11.7 billion on the same period last year and hit the lowest first-half total in five years.
Private equity and real estate secondaries funds that hit final close raised $12.73 billion in the six months to 30 June, down from $24.45 billion in H1 2017, according to PEI data. This marks the lowest total since H1 2013, when funds raised $10.55 billion.
A total of 17 funds held final closes in the first half, the largest being Landmark Real Estate Partners VIII, which wrapped up fundraising in April on $3.3 billion, making it the largest fund yet raised for real estate secondaries.
Portfolio Advisors Secondary Fund III, Newbury Equity Partners IV and Ardian's AESF VI were the other secondaries funds to hold final closes on more than $1 billion during the period, the data show.
Ardian, Coller Capital, Lexington Partners and Strategic Partners are among those who are in market, alongside mid-sized players such as ICG and Glendower Capital.
"If you wanted to launch a fund in secondaries or any other strategy, then now is the time to do it," Sunaina Sinha, managing partner at advisory firm and placement agent Cebile Capital, told Secondaries Investor in April.
Hayfin Capital Management, a private debt specialist, has hired a Pantheon investment professional as it builds out its secondaries team, Secondaries Investor has learned.
The London-headquartered investment firm has hired Vladimir Balchev, a vice-president in Pantheon’s European investment team, according to two sources familiar with the matter. He will join Hayfin's private equity funds investment team after the summer as a principal and focus on secondaries.
Balchev ranked second in Secondaries Investor's Young Guns of Secondaries Class of 2017 and was promoted in each of his four years at Pantheon. He has been responsible for origination, analysis, and deal execution as well as covering the CEE region as a relationship manager. He also has prior experience at Rothschild.
In January Hayfin hired Mirja Lehmler-Brown from Aberdeen Asset Management to lead its newly created private equity fund of funds platform, which invests in mid-market European buyout houses. A source at a European fund of funds told sister publication Private Equity International in February that Hayfin was planning to differentiate itself by building up expertise in secondaries and co-investments.
Hayfin was founded in 2009 and invests across direct lending, special opportunities, high-yield credit and securitised credit strategies, according to its website. It has offices in London, Paris, Madrid, Frankfurt, Luxembourg, Tel Aviv and New York.
At least two other institutions have launched private equity secondaries businesses this year. Dutch pension manager APG's asset management unit is establishing an in-house team based in New York, while BlackRock hired two executives from Goldman Sachs Asset Management to build a team from July.
Hayfin and Pantheon declined to comment.
– Rod James contributed to this report.
ICG and Goldman Sachs Asset Management have backed the spin-out of a Chinese conglomerate's captive private equity team.
The firms provided $325 million to support the acquisition of a portfolio of assets managed by private equity firm Aretex, according to a statement. Aretex was the captive private equity team of Chinese investment firm ZZ Capital International and spun out as a result of the deal, according to a source familiar with the matter.
Park Hill Group advised Aretex on the transaction.
ICG invested in the deal through its strategic equity unit. It is unclear which funds Goldman used to back the transaction.
The portfolio comprises three assets, the largest of which is Dallas-headquartered Alerian, which produces benchmarks and indices for the energy industry. The sale of Alerian to the ZZ Capital team was agreed in June 2017, according to a statement from ZZ Capital.
The imposition of capital controls restricting the outflow of US dollars by the Chinese government meant that ZZ Capital discontinued its overseas private equity programme and the deal was not closed until ICG and Goldman intervened, Secondaries Investor understands.
ZZ Capital's private equity team was founded by Sergio D'Angelo and Andrew Feller, of KKR and Metalmark Capital respectively. They joined in 2016, according to their LinkedIn profiles, and officially spun out to create Aretex in June.
ZZ Capital International was formed in 2011 and has more than 40 billion yuan ($6 billion; €5.2 billion) in assets under management, according to its website. The firm is listed in Hong Kong under the name Zhongzhi Capital.
ICG is currently in market seeking $1.6 billion for its latest dedicated secondaries fund, Secondaries Investor revealed in April.
Goldman Sachs' Vintage VII secondaries fund raised $7.12 billion by final close in July 2017, according to PEI data.
Tullett Prebon's secondaries team has undergone considerable changes to its function and management.
The division, which was previously known as Tullett Prebon Alternative Investment Desk, will be consolidated with the debt solutions team under the name Tullett Prebon Alternatives, according to a statement obtained exclusively by Secondaries Investor.
Michael McKell, the group's former head of real estate secondaries and one of Secondaries Investor's Young Guns from the class of 2017, becomes head of secondaries.
Gareth James, a former global head of hedge fund derivatives at Deutsche Bank and global head of hedge fund solutions at UBS Investment Bank, will lead the Tullett Prebon Alternatives group. He joined the firm in January.
The Alternatives team will report to Sam Ruiz, global chief executive officer of TP ICAP Group's Institutional Services division.
TP ICAP Group was formed in 2016 through ICAP's acquisition of Tullett Prebon in a deal valued at £1.28 billion ($1.7 billion; €1.5 billion). It is the world's largest interdealer broker.
The secondaries team executes private equity, real estate, hedge fund and private credit transactions. The debt solutions team arranges and structures financing facilities for private funds and fund managers. By placing the two teams together, the firm plans to leverage its banking relationships to extend quick, cheap financing for secondaries transactions.
"On the debt side, navigating the banks and lending space for optimal terms is a minefield, particularly as borrowers are not specialists and lenders are more apart from each other and more numerous than they have ever been," said Gareth James.
James replaces Tullett Prebon's former global head of alternatives Alastair Sword, who left in April.
Three members of the secondaries team took up director positions with Duff & Phelps's secondaries unit this year: Bill Arnold and Dan Nolan in January, and Maulik Patel in April, as reported by Secondaries Investor.
Ardian invested $6.4 billion in secondaries deals last year, closing 14 transactions.
The Paris-headquartered firm's fund of funds group distributed $5.8 billion to investors, according to its Activity Report 2017. Its transactions comprised eight secondaries, four early secondaries and two infrastructure secondaries deals.
The firm's ASF VII fund, which includes $10.8 billion for secondaries, was 67 percent invested as of 31 December.
Headline deals the firm invested in 2017 include the $2.5 billion stapled transaction with Mubadala Capital which it syndicated with global LPs, and a $900 million portfolio from the UK's Universities Superannuation Scheme.
Last year Ardian also closed its ASF VI Energy fund on $283 million, including co-investments, and had completed two deals from the fund as of December.
"Now that excess capacity has been removed and the weaker assets have been written down we see it as an opportune moment to be more active on the secondary front [in energy]," Benoît Verbrugghe, head of Ardian US, said in the report.
On real estate secondaries, Ardian plans to buy portfolios of interests in funds rather than direct holdings "if and when" it moves into the strategy, Verbrugghe noted.
The firm is also actively managing its portfolio, including recapitalisations on parts of its portfolios where the debt level is modest, head of fund of funds Vincent Gombault noted.
"If we think we’ve seen most of the appreciation in a portfolio, we will sell it and return the cash to our LPs so they can look at better opportunities," Gombault said. "We’re using all the tools available to manage our positions more actively."
Ardian deployed $1.5 billion in primary commitments across 24 funds, the report noted.
The firm is seeking $12 billion for its latest flagship vehicle, ASF VIII, as Secondaries Investor reported in May.
Secondaries deals in 2017 reported by Ardian
|Sovereign wealth Fund
||14 LP interests, 14 direct interests
|North American pension fund
||11 LP interests
|European pension fund
||8 LP interests
|European financial institution
||2 LP interests
|European investment firm
||3 LP interests
||1 LP interest (late primary)
|European financial institution
||2 LP interests
||1 LP interest
Venture capital secondaries firm Industry Ventures has wrapped up fundraising on its fifth hybrid fund of funds.
Industry Ventures Partnership Holding V hit final close on $335 million, exceeding its target of $250 million, according to a statement from the firm. Like its predecessors, the fund will make primary commitments, buy secondaries stakes in smaller, early-stage VC funds, and make co-investments alongside smaller GPs.
The fund’s investor base includes government and corporate pension funds, endowments, foundations, high-net-worth family offices and the firm’s managing directors, the statement notes.
These include New Hampshire Retirement System, Rhode Island State Treasury and South Carolina Retirement System, according to PEI data. Predecessor Holding IV hit final close om $205 million in July 2016, exceeding its target of $200 million.
Speaking to Secondaries Investor in September, chief executive and founder Hans Swildens said that pockets of value can still be found in the sub-$25 million range of the VC market, "too small for a big secondaries fund and too small for anybody that’s large and institutionally funded, like a sovereign wealth fund".
The firm held its final close on its last dedicated secondaries fund, Industry Ventures Secondary VIII, in 2016, closing above-target on $500 million. That fund invests in direct secondaries, VC fund stakes and special situations, which it classes as deals that require unique deal structuring.
The new fund of funds brings the firm’s total assets under management to $3.4 billion.
Venture capital stakes were the second most highly traded last year, accounting for 22 percent of the total, accounting to research by advisor Greenhill.
HighGear Ventures, founded in 2014 by a former Industry Ventures partner, is seeking $100 million for venture capital secondaries.
HighGear Ventures Secondary I has raised $6.37 million of its target so far from 22 investors, according to a filing with the Securities and Exchange Commission. The minimum investment is $250,000, a figure that can be waived at the GP's discretion.
HighGear makes direct secondaries investments in VC-backed companies, buys portfolios of mature LP stakes and backs fund restructurings, according to its website. Companies it has or is invested in include cloud computing firm Adaptive Insights, online music streaming service Pandora and laser-based instrumentation developer SpectraSensors.
Founder Jim Jones was a venture partner at VC direct secondaries firm Industry Ventures from 2010 to 2014 and a managing director at technology investor Scale Venture Partners from 1999 to 2010, according to his LinkedIn profile.
Steven Taubman, who joined the San Francisco-based group as managing director in 2016, remains a managing director with secondaries pioneer VCFA Group, where he has been since 1998, according to his LinkedIn profile.
HighGear has one previous vehicle registered with the regulator. HighGear Ventures SPV-T raised $1.065 million, according to a Form D filed in August 2016. How much it had raised by final close is not clear.
In Greenhill Cogent’s 2018 outlook report the advisor noted general partners have been broadening their fund mandates to encompass non-buyout strategies. Venture capital stakes were the second most highly traded last year, accounting for 22 percent of the total, the report noted.
HighGear did not respond to a request for comment.
Citi, one of the US's largest investment and retail banks, has launched its secondaries advisory business.
Citi private capital advisory, a unit within the bank's senior markets origination (SMO) team, advises on fund recapitalisation and restructurings, portfolio sales, seeded joint ventures, and management team spin-outs, according to a job advert seeking a vice-president on the bank's website.
PCA focuses on deals across buyout, real estate, venture, private credit, energy and infrastructure, the advert notes.
The SMO team's clients include private equity, sovereign wealth funds and select pensions and asset managers.
Last October UBS director Orcun Unlu returned to Citi after 18 months away, as Secondaries Investor reported at the time. He is now head of the PCA unit, according to his LinkedIn profile.
Citi had responded to a request for proposals for an advisor to help Los Angeles County Employees Retirement Association sell more than $1 billion of stakes, according to May investment committee meeting documents. The eventual shortlisted firms were Greenhill, Evercore and Campbell Lutyens.
According to Citi's job advert, the successful vice-president candidate will originate and sell capital solutions, structured trades, illiquid portfolio finance and portfolio risk mitigation trades to general and limited partners. The successful candidate will have three to seven years of experience in a similar financial services position, solid understanding of private equity, and specific experience of covering secondaries markets buyers and sellers, the ad notes.
The position will be based in New York.
HarbourVest Partners has emerged as lead backer of a $1.9 billion energy fund restructuring.
The Boston-headquartered firm led a group of investors that backed a fund formed to acquire the remaining net asset value held in Lime Rock Partners IV, a 2006-vintage vehicle managed by upstream oil and gas investment manager Lime Rock Partners, according to a statement.
Continuation vehicle Lime Rock Partners IV AF received $741 million in capital commitments from a group of secondaries and primary investors, with Lime Rock employees accounting for the largest proportion of investment. Investors in Fund IV were given the option to reinvest in the acquisition fund or cash out with full or partial liquidity, the statement noted.
It is not clear how many LPs reinvested and how many cashed out.
Evercore advised the buyers on the deal. Morgan, Lewis & Bockius served as legal advisor to Lime Rock, Debevoise & Plimpton to HarbourVest.
Lime Rock will maintain management of the vehicle, giving it time to maximise the value of oil and gas producer CrownRock, which accounts for a "vast majority" of the fund's remaining net asset value, the statement noted.
CrownRock operates in the Permian Basin in Texas, the largest petroleum producing basin in the US.
In its 2018 Secondary Market Review advisor and placement agent Campbell Lutyens noted that secondaries buyers completed an average of 3.5 single-asset deals last year.
Lime Rock Partners has $7.4 billion in assets under management, according to PEI data. It is in market with Lime Rock Parnters VIII, which seeking $1 billion.
This week we reported Canada Pension Plan Investment Board had backed a deal worth close to $1 billion that allowed the UK's second-largest pension, BT Pension Scheme, to reallocate capital to a new strategy.
The transaction also allowed BTPS's manager, Hermes GPE, to maintain management fees over a portfolio of high quality and what appear to be relatively young buyout fund stakes – the likes of The Carlyle Group, IK Investment Partners, EQT and Exponent Private Equity, to name a few.
Fund restructurings are typically executed at asset level, moving stakes in companies from an existing vehicle into a new fund, such as a continuation vehicle. In this deal, stakes in funds themselves were moved. It's unclear why CPPIB, which is understood to have originated the deal, chose to let Hermes retain management fees, rather than cut out the manager and acquire the fund stakes outright.
CPPIB's motivation may never become clear, but one suspects it has an ongoing relationship with Hermes or has secured some sort of future dealflow rights through the transaction. Whatever its reason – remember no intermediary was used – the pension giant is proving itself a savvy and innovative operator.
In the space of just over a decade CPPIB has transformed itself from a passenger in private equity funds to a driver leading the pack. The Canadian pension's secondaries team, led by Michael Woolhouse in Toronto plus Nik Morandi and Louis Choy in London, had its most active year ever in the 12 months to 31 March with C$4.2 billion ($3.2 billion; €2.7 billion) worth of transactions across 14 deals.
The team has backed some of the largest and most creative deals yet, including the restructuring of three of Peru's Enfoca Investments' funds with Goldman Sachs Asset Management and its preferred equity stapled deal with Olympus Capital Asia.
Non-traditional players such as CPPIB have benefits including a lower cost of capital compared with traditional buyers. They often don't use third-party acquisition financing for deals and aren't under the same pressures to deploy as traditional buyers who have 10-year vehicles. Plus, they don't need to hit the fundraising trail or explain to LPs why they passed on a deal.
There are non-investment benefits too. As one professional at a non-traditional institution who used to work at a traditional shop said: "The hours are better. I don't feel as guilty going home on the dot to my kids."
Still, compensation remains a question. Without the allure of carried interest, joining a non-traditional player means individuals must get satisfaction from building a team, work-life balance or creating value for pension members.
The number of non-traditional secondaries players is set to grow – public or private pension funds and sovereign wealth funds backed 10 percent of deals last year, up from 6 percent the year before, according to research by Evercore. Singapore's GIC continues to be a formidable player and anyone keeping their eye on job boards will know a certain Gulf-based sovereign wealth fund wants to build an infrastructure secondaries team. APG got into secondaries via real assets and just launched its private equity secondaries team this month.
The world of secondaries is about to get a whole lot more competitive.
CPPIB closed two preferred equity deals last year, one of which was its stapled deal with Olympus Capital Asia. What was the other? Let us know: email@example.com or adamtuyenle
What will a typical private equity limited partner look like in 10 years’ time? Will closed-ended fund investments still play a prominent role in its portfolio, or will co-investments, direct investments and separately managed accounts take the lion’s share? Will it still be willing to pay management fees to GPs? Will it have finally broken down the transparency and disclosure barriers it has been chipping away at since the global financial crisis? Will ‘limited partner’ even be the correct way to describe it?
The LP of the future will have no unwanted funds that have outlived their 10-year life. Portfolios will be devoid of zombies. Assets will have been rolled into new structures or a pre-agreed liquidity process will have been triggered and LPs would have opted to cash out with the help of the buoyant secondaries market.
According to Goodwin fund formation partners Shawn D’Aguiar and Ajay Pathak, GP-led liquidity options are likely to feature regularly in fund documents, whether in the form of a promise by fund managers to hold a tender offer at a certain point in a fund’s lifespan or a less binding agreement that the GP will help an LP seek a secondaries buyer if it wants to exit. These innovations won’t mean the death of the tail-end secondaries market. Thanks to the sheer weight of primary fundraising the acquisition of funds near the end of their 10-year life is bound to be a much bigger market in 10 years’ time.
John Carter, founder and chief executive of Hollyport Capital, believes the market will be dominated by perhaps four specialist secondaries buyers. GPs are increasingly insisting buyers of stakes in their funds are managers with which they have an existing relationship.
Also contributing to a tidier portfolio will be innovation in longer life funds, taking a cue from the real assets world. The Goodwin lawyers point to a recent high-profile example – Core Equity Holdings’ 15-year, €1 billion debut fund last year – on which they advised.
Savvy use of the secondaries market will also allow a chief investment officer to increase or decrease certain investment exposures on a much more frequent basis, providing some liquidity in a long-term asset class.
“The transaction and friction costs right now are too high for that, it requires GP approvals and usually involves a process, but I would imagine over time, the secondaries market could become far more liquid and with less friction from a transaction perspective,” says TorreyCove’s David Fann.
“This approach works well if it’s highly liquid, where you can actually buy and sell secondaries in an exchange-like fashion. In a 10-20-year time frame, it’s not too difficult to see that possibly happening.”
LP of the future in 10 slides
Sister publication Private Equity International's full coverage
We are also likely to see more investment company-type structures, as GPs relieve themselves of the pressure of having to invest within the constraints of a fund.
For more of sister publication Private Equity International's LP of the Future special report, please visit here.
Missouri Local Government Employees' Retirement System has upped the ante with its investment in Portfolio Advisors' latest real estate fund of funds.
The $7.6 billion pension fund committed $60 million to Portfolio Advisors Real Estate VII, according to a statement from the pension fund.
It committed $30 million to predecessor PAREF VI, which raised $485 million by final close in August after around two and a half years in market.
PAREF VII has a similar strategy to PAREF VI, investing in primaries, secondaries and co-investments, according to a source familiar with the fund. The fund has no defined target yet but will seeks to raise a little more than its predecessor, the source said.
PAREF VII hit a $100 million first close in January on the back of commitments from two investors, according to a filing with the Securities and Exchange Commission.
Missouri LAGERS has previously invested in a Portfolio Advisors private equity secondaries fund, the 2015-vintage Portfolio Advisors Secondary Fund III, according to PEI data. That fund held its final close in January on $1.5 billion, exceeding its $1 billion target.
Real estate accounted for 14 percent of the $58 billion in secondaries deal volume last year, according to Greenhill Cogent’s latest annual report.
Macquarie Infrastructure and Real Assets’ Super Core Infrastructure Fund has included a facility for secondaries sales in its fund documentation, according to public pension documents seen by sister publication Infrastructure Investor.
The fund is set to close imminently on €2.5 billion as of mid-June after the $31 billion South Carolina Retirement System committed €125 million to the vehicle. It is targeting an annual 7 percent to 8 percent net return with a 5 percent cash yield.
The fund is structured as a 20-year fund starting from the close and can be extended in five-year increments into perpetuity, provided a majority of LPs agree. A structured secondaries programme is available every five years from and including year 10.
Liquidity windows, which allow investors to exit a fund during its life, are a feature of infrastructure funds given their typically long lifespans, Jeremy Pickles, a partner in the investment funds team at Hogan Lovells, told Secondaries Investor.
"The problem with them has been how to fund the exits, and [how to choose which assets to sell] in order to do so," he said. "Given the developments in the secondaries market over recent years, it is a natural step to seek to fund these liquidity windows by way of a structured secondaries programme, and keep the portfolio intact.
Super Core Infrastructure Fund’s performance structure is predicated on yield rather than returns, with a performance fee of 20 percent of the vehicle’s yield over a 4 percent yield hurdle per year, after fees and expenses. Management fees amount to 50 basis points on uninvested capital and are capped at 65 basis points on the fund’s net asset value.
Documents from South Carolina’s Retirement System Investment Commission indicate the fund should have at least nine assets by the time it closes on Series 3, sometime in 2021. It currently owns stakes in two assets – the UK’s Cadent Gas and Finnish electricity distribution company Elenia – and will focus mainly on European regulated utilities, with up to 25 percent of the three-series capital-raise eligible to be invested in US, Canadian and Australian assets.
MIRA declined to comment on the fundraise.
Infrastructure funds raised move than $66 billion last year, setting a record for the asset class within the private funds market, according to Credit Suisse private fund group's Secondary Market Update May 2018. They represented 8.4 percent of all private funds raised in 2017, up from an average of around 7 percent over the preceding 10 years.
The asset class is "particularly well poised for increased secondary dealflow in the years ahead," Credit Suisse noted.
– Rod James contributed to this report.
Leerink Revelation Partners, a partnership between West Coast fund managers Leerink Capital Partners and Revelation Partners, recently raised $227 million to invest in healthcare secondaries.
Leerink Revelation Healthcare Fund II can acquire direct positions in healthcare companies, buy stakes in funds, back GP-led processes and provide follow-on capital. Managing partner of Revelation Partners Scott Halsted, who spent 20 years as a direct VC investor at Morgan Stanley, discusses the market with Secondaries Investor.
How large is the healthcare secondaries market?
It’s difficult to get good numbers. What we can do is look back over the last 10-15 years and see how much venture capital money has been invested in healthcare companies. That number is about $20 billion-$25 billion dollars. That excludes other significant groups of investors such as corporate entities like Boston Scientific or Thompson and Johnson, which probably adds another $10 billion to that, and then there are angel investors. Our best estimate for the total available market is $25 billion-$35 billion.
Are healthcare funds more likely to get to the end of their lives and need more time?
Healthcare tends to be one of those areas with the longest holding periods from first investment to exit. The number moves around a little but six to eight years is the typical holding period. But it’s really a bell-shaped curve – there are companies that exit early and others that don’t exit until year 10, 11 or 12.
It’s a regulated industry so not only are there all the development hurdles that you’d expect from developing a new drug or device but you also have to lay on regulatory [requirements], whether the Food and Drug Administration in the US or European regulatory bodies. It’s not unusual for a company to spend two to four years just going through the regulatory process.
Do directs make up a majority of your dealflow?
We’ll do anything – we’ll buy LP interests, do GP recaps, strips of assets – but the biggest chunk of what we do is direct secondaries. The other thing that happens in healthcare is because companies take a long time, existing investors are often not seeking liquidity but additional capital to support their portfolio companies. We won’t actually buy someone’s stake. We come in, give them the capital to protect what they’ve invested over the last five or 10 years.
What sort of pricing do you tend to see?
VC takes a steeper discount [to LBO] and within that healthcare takes a steeper discount. Healthcare stakes are trading at anywhere from a 25-35 percent discount to net asset value.
You need to understand not only the biology but the regulatory [system] and third, reimbursement is very important. These investments tend to have more binary risk, a single point of failure. The technology seems to work great but the FDA may turn them down, which is really bad news.
Are most of your deals proprietary?
Yes. The reason for that is that most of the deals in the space tend to be on the small side, below $50 million or even $20 million. There isn't enough volume to attract intermediaries into the market. That's good in the sense that most of the deals we do tend to be non-competitive. The negative is that a huge amount of education [of potential sellers] has to take place.
What's your investor base?
It tends to be large family offices and ultra-high-net-worth individuals. They tend to like secondaries because you get a pretty quick return on capital relative to traditional venture investing. They see it as getting venture exposure with a little less risk.
Will the market grow?
This is the classic definition of a niche business. It’s too small and difficult to do to attract a lot of players. I certainly would expect to have more competition – you always do. But it’s not a place where one can put billions of dollars or hundreds of millions to work easily. We haven't seen emerging competition and I don't think we’re expecting much.
Scott Halsted is a founder of Revelation Partners and managing partner at healthcare secondaries alliance Leerink Revelation Partners.
He was previously a managing member at Morgan Stanley Ventures, where he worked from 1987 to 2007. Prior to his investment career, he held product design and business development roles in the medical technology field.
Goldman Sachs Asset Management has used its Vintage-series secondaries funds to help buy property developer TriGranit from TPG's real estate arm.
The investment bank joined Revetas Capital, a private equity real estate firm focused on Central and Eastern European markets, as one of several co-investors in the deal, according to a statement.
Sister publication PERE reported in May that Revetas was leading a club of investors in the acquisition of the Budapest-based developer from private equity giant TPG Real Estate. Terms of the transaction were not disclosed, but the deal is understood to be valued at approximately €300 million, PERE reported.
The deal marks the last capital commitment for London-based Revetas’s second fund and the first for Revetas Capital Fund III. The latest fund has raised approximately €60 million from existing investors against a target of €350 million. The predecessor fund, Revetas Capital Fund II, is currently projecting gross IRRs of 24 percent and an equity multiple of 2.1x, PERE understands.
Goldman's latest secondaries vehicle, Vintage Fund VII, beat its $5 billion target to close on $7.12 billion, according to PEI data. The firm also has a 2015-vintage $568 million fund named Vintage Real Estate Secondary Strategy, and had a "tactical tilt" to real estate in its 2012-vintage Vintage VI Fund "due to supply/demand imbalance and recovering real estate fundamentals", according to an investment document for its Vintage VII fund obtained by Secondaries Investor.
Revetas has investors which have made fund and co-investment commitments in both Revetas Funds II and III. Goldman Sachs, which could not be reached for comment, invested through its Vintage funds, which focus on the secondaries market for private equity, according to Revetas’s announcement.
“What is interesting here is some of the biggest institutional investors are getting access to the region through us,” Revetas founder and managing partner Eric Assimakopoulos said, adding Revetas had previously invested alongside groups including New York-based firms Cerberus Capital Management.
Assimakopoulos noted that having major private equity players diligence Revetas’s deals adds “a level of comfort” to the deal-making process.
“It aligns our capital base because they’re an investor,” he said. “We work hand-in-hand with professionals who have a tremendous amount of experience. We believe these partnerships are very strong because of the ability to leverage that experience to, at the end of the day, deliver better returns for everyone.”
– Adam Le contributed to this report.
Canada Pension Plan Investment Board has backed a deal which allowed Hermes GPE to continue managing a funds portfolio and the UK's second-largest pension fund to reallocate capital, Secondaries Investor has learned.
UK regulatory filings from April and May show London-headquartered Hermes transferred fund interests held in at least three vehicles into a new fund named Hermes GPE Global Secondary II.
The deal, worth almost $1 billion in net asset value plus unfunded commitments, allowed Hermes to retain management fees over the fund of funds portfolio, according to three sources familiar with the matter. CPPIB backed the majority of deal, the sources said.
Ardian joined as a minority co-investor, according to two of the sources.
It is understood that BT Pension Scheme, historically Hermes's largest investor, cashed out of the funds of funds to CPPIB and Ardian. The deal allows Hermes, on behalf of BTPS, to move away from vanilla buyout funds and focus on high-growth funds and strategies including emerging markets and emerging managers.
Proceeds from the deal will be redeployed by BTPS into a new strategy to be managed by Hermes in the coming months, Secondaries Investor understands.
The deal closed in the first quarter of this year, two of the sources said.
The filings show some of the stakes include:
- Partners Group Secondary 2008, a 2007-vintage €2.5 billion secondaries fund
- Carlyle Europe Partners IV, a 2014-vintage €3.75 billion fund and Carlyle Europe Technology Partners III, a 2014-vintage €656.5 million fund
- Rutland Fund III, a 2014-vintage £263 million ($248 million; €299 million) buyout fund
- Exponent Private Equity Partners, a 2004-vintage £400 million buyout fund
- Exponent Private Equity Partners III, a 2015-vintage £1 billion buyout fund
- IK VII, a 2013-vintage €1.4 billion buyout fund
- BC European Capital IX, a 2011-vintage €6.7 billion buyout fund
- EQT VI, a 2011-vintage €4.8 billion buyout fund
- Stirling Square Capital Partners Third Fund, a 2014-vintage €600 million buyout fund
The stakes were held in vehicles including Hermes USA Investors Venture, Hermes Private Equity Investments Holding 2004 and Hermes GPE PEF I, the filings show.
It is understood that CPPIB originated the deal and no intermediary was used. The Canadian pension giant noted in its latest annual report that it had purchased two large LP portfolios in the 12 months to 31 March. One of those deals was the purchase of more than $1 billion worth of pre-crisis private equity fund stakes from Ardian, as Secondaries Investor reported last year. It is understood the deal with Hermes was the other transaction.
Traditional secondaries buyers are under "competitive pressure" from LPs seeking direct access to deals, Campbell Lutyens noted in its 2018 Secondary Market Overview Report. These players are finding creative ways to secure dealflow, through hired managers, separate accounts or co-investments, the report added.
BT Pension Scheme had £49.3 billion in net assets as of 30 June, according to its latest annual report. In April it sold a 60 percent stake in Hermes to US-based Federated Investors worth £246 million. The pension retained a 29.5 percent share in the group which it first established in 1983.
Hermes GPE manages around $5 billion in private equity assets, according to PEI data. In October sister publication Private Equity International reported that Hermes was tilting towards more separately managed accounts through its co-investment programmes due to demand from several LPs.
CPPIB, Hermes, BT Pension, Ardian, Partners Group, Rutland, IK, EQT, BC Partners, Carlyle, Exponent and Stirling Square all declined to comment.
Chinese wealth management firm CreditEase Wealth Management is planning to raise its third and largest fund of funds by the third quarter this year, sister publication Private Equity International has learned.
The Beijing-headquartered firm is eyeing a $300 million target for CreditEase Wealth Management Global Fund of Funds III, up from its $200 million predecessor.
The firm will earmark up to 20 percent of the fund for secondaries and co-investments.
Seungha Ku, partner for global private equity at CreditEase, told PEI that the firm expects more Asia-based high-net-worth investors and institutions for its latest offering. It received commitments mainly from Chinese HNWIs, family offices and trusts for its first two funds: the 2016-vintage, $200 million CreditEase Global Private Equity Fund of Funds and the 2017-vintage $200 million Fund II. Both funds are almost fully invested, Ku said.
Fund III will have the same strategy as previous funds. Around 60 percent will back mid-market buyout managers and the remaining 40 percent for venture capital and growth. Target geographies also remain the same: North America, Western Europe, the Nordics and Asia.
Capital raised from Fund III will focus on growing industries such as consumer, TMT, fintech and healthcare. Ku said that on the healthcare side CreditEase will focus on the US and China markets, from VC-oriented investments such as biopharma to providers and operators of clinics, as well as health tech and medical devices.
CreditEase has backed funds managed by global buyout firms such as Blackstone, KKR and The Carlyle Group as well as venture capital firms in the US and China. The firm will remain focused on smaller, sector-focused fund managers, Ku stressed.
Along with its global fund of funds, Credit Ease is also deploying capital from its 2016-vintage Global Secondary Fund which closed on $150 million.
Stafford Capital Partners has hit an above-target final close on its latest infrastructure fund, one month after the firm rounded off fundraising on its latest timberland secondaries vehicle.
Stafford Infrastructure Secondaries Fund II closed on €400 million, exceeding its €250 million target, according to a statement from the firm. The fund attracted capital from new and existing investors.
The vehicle has already made six investments in infrastructure managers from Europe, the US and Australia, equivalent to around 25 percent of capital raised.
One of these deals was the March 2017 acquisition of a stake in the 2007-vintage, €2 billion RREEF Pan-European Infrastructure Fund, managed by Deutsche Bank. The interest was acquired from SCOR Investment Partners, the investment arm of French reinsurance company SCOR.
Fund II had been in market since July 2016, according to data from sister publication Infrastructure Investor.
Infrastructure secondaries deal volumes were up 11.1 percent year-on-year to $1.79 billion last year, according to intermediary Setter Capital’s Volume Report FY 2017.
In May Stafford hit a $612.5 million final close on its latest timberland fund after around 19 months in market. SIT VIII, which was targeting $500 million, has already made three secondaries investments and one co-investment, equivalent to around 21 percent of the fund.
The firm has more than $5.4 billion in assets under management across agriculture, credit, infrastructure, private equity, sustainable capital, timberland and venture capital. Around $1.3 billion is in real assets, the firm noted in the statement.
Watch Stephen Addicott, a timberland partner at Stafford Capital Partners, discuss why LPs choose to sell timberland and agri stakes.
Campbell Lutyens has officially opened an office in Singapore, its second outpost in the Asia-Pacific region.
The office is already up and running with two professionals and the advisory firm and placement agent wants to hire more people, George Maltezos, a partner and co-head of Asia-Pacific told sister publication Infrastructure Investor.
“Singapore represents a strategically important market for our firm, as it strengthens our breadth and depth in the region,” Maltezos said.
The two already in place are principal Aiva Sperberga and associate Robin Seng, according to the firm's website. Sperberga, who ranked 17th in Secondaries Investor's Young Guns of Secondaries Class of 2017, has been working in Singapore for Campbell Lutyens since 2013, according to her LinkedIn profile.
Since establishing a Hong Kong office in 2010, the firm’s Asia-Pacific team has grown to 15 and is advising on $7.8 billion of transactions for the region’s clients, Campbell Lutyens said in a statement announcing the opening.
Maltezos stressed the Singapore office extends the firm’s commitment to the region, focusing on primary fundraising and secondaries transactions for private equity, private debt and infrastructure.
At the same time the firm hired a vice-president to its New York secondaries advisory team, Secondaries Investor has learned. Stephen Henderson has joined the firm after spending six-year at investment bank Atlas Advisors, having started his career as an analyst with Cogent Partners in Dallas.
Earlier this year Campbell Lutyens opened offices in Chicago and Los Angeles. With the addition of Singapore, the firm operates six offices globally.
Rod James contributed to this report.
Rede Partners has hired AlpInvest Partners' former head of Asia-Pacific secondaries, who spent almost a decade at the firm, Secondaries Investor has learned.
[caption id="attachment_26394" align="alignright" width="180"] Michael Camacho[/caption]
Michael Camacho will join the London-headquartered advisory firm and placement agent in July. He will be a principal in a four-person dedicated secondaries team led by Yaron Zafir.
"[Camacho] being from the buyside, being able to understand how secondaries investors think about transactions, how they price transactions, what they look for, how they execute these transactions, is fundamental to the way we operate," Zafir told Secondaries Investor. "It gives us a strong advantage when putting together these transactions."
Camacho left AlpInvest in March 2017. He worked in its New York, Hong Kong and Amsterdam offices and was head of Asia-Pacific secondaries between 2013-16. He was most recently a principal there.
Rede worked on at least €500 million-worth of deals last year which were all GP-led, according to Secondaries Investor's annual survey of advisory firms. Those deals comprised 35 percent growth and venture, 18 percent mezzanine and the remainder buyout.
The firm plans to add at least two more dedicated secondaries professionals, who will be based in London, before the end of the year, Zafir said.
Rede is also planning to introduce several US managers to its client base for primary fundraising and its co-founder Scott Church will relocate to the placement agent’s New York office in August, sister publication Private Equity International reported in May.
Colony Capital confirmed on Thursday it will acquire a large chunk of Abraaj Group’s fund management business and stakes in some of its funds.
Colony is a real estate specialist founded by real estate mogul Tom Barrack. The firm is better known for transactions such as taking over a $1.3 billion hotel portfolio from Goldman Sachs and bidding on film production firm The Weinstein Company. In 2016 it gained secondaries expertise by acquiring NorthStar Asset Management. Colony executives told sister publication PERE in December the firm was looking at complex secondaries deals such as real estate fund restructurings. Barrack himself has strong ties to the Middle East and is reported to have raised sizeable chunks of capital from the Gulf, which could explain why Colony is on the buyside of the Abraaj deal. Colony boasts offices in 18 cities globally, including a Beirut outpost and two in Asia.
Colony has acquired management teams and limited partner stakes in some funds in four regions: Latin America, sub-Saharan Africa, North Africa and Turkey. These include the 2014-vintage $526 million Abraaj Turkey Fund and the 2013-vintage $926 million Africa Fund III. The firm will also provide “interim support” to other legacy funds not in those regions, but it is not clear what form that will take.
Abraaj has been trying to offload its general partner commitments to several of its funds since last year. Firms including HarbourVest Partners and other large secondaries buyers have looked at limited partner stakes and attempts at a stapled deal process towards the end of last year fizzled out. In February revelations that four LPs in its Global Healthcare fund had hired an auditor to examine the alleged misuse of capital brought it into the public eye. Colony was first linked to the deal in May, with TPG and Cerberus Capital Management also reported as contenders for different segments of the business.
Colony, which is based in Los Angeles, has said that Abraaj teams responsible for managing funds in the four regions will be brought under its roof. What happens to team members not included in the deal is unknown. Colony’s asset management experience is predominantly in the US, not emerging markets. The move may lay some groundwork not just for geographic diversification, but expansion of its real estate, healthcare and industrials remit to Abraaj’s other favoured sectors such as education, agriculture and manufacturing.
This is a trickier question to answer, at least for the time being. The official statement from the two firms speaks only of saving Abraaj, rather than how the group fits into Colony’s strategy. Of course, more assets mean more management fees, which are always welcome at listed investment firms. Numbers have not been disclosed, but a back-of-napkin calculation suggests Colony will be taking on at least $1.5 billion in assets under management, according to PEI data.
It is not unheard of for Colony to make opportunistic investments outside its real estate sweet spot, such as the aforementioned Weinstein deal. Curiously, in Thursday’s announcement Colony made no mention of property, describing itself instead as “an investment firm with significant holdings in the healthcare, industrial and hospitality sectors”. Could this be a hint of further diversification to come?
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PS. There's just one week left to submit nominations for our Young Guns of Secondaries Class of 2018 – details here.
Pantheon's latest secondaries fund is looking to raise less capital than its predecessor, Secondaries Investor has learned.
Pantheon Global Secondary Fund VI is targeting $2 billion, according to two sources familiar with the fundraising. The London-based investment firm had sought $2.5 billion for its 2013-vintage predecessor, according to PEI data.
The fund was registered in Luxembourg in December, according to public filings. A US feeder fund hit a first close on $199.9 million in April, having made a first sale on 29 March, according to a filing with the Securities and Exchange Commission.
Global Secondary Fund V raised $2.5 billion by final close in 2016 and approximately $1 billion of additional capital through the firm's listed vehicle and separately managed accounts, Secondaries Investor reported.
The fund had generated an internal rate of return of 21.6 percent and a total-value-to-paid-in multiple of 1.29x as of the end of December, according to performance data published by Ventura County Employees' Retirement Association.
Pantheon has bulked up its investor relations function over the past year. In February the firm hired former First Avenue partner Justin Mallis to oversee its global fundraising activities, Secondaries Investor reported.
In June 2017 the firm hired Alistair Galloway as a senior relationship manager from JAR Capital. In January of that year, Andrew Bush and Emma Dineen were each promoted to the role of relationship manager, vice-president.
Pantheon could not be reached for comment.
Colony Capital will acquire a large chunk of Abraaj Group's fund management business, bringing the saga of the emerging markets manager one step closer to an end.
The Los Angeles-headquartered investment manager is assuming management of Abraaj's Latin America, sub-Saharan Africa, North Africa and Turkey funds business and acquiring Abraaj's limited partnership interests in the underlying vehicles, according to a statement. It will also transfer staff from the eight offices affected by the deal.
Colony has also agreed to oversee some of Abraaj's remaining funds until a settlement is reached, the statement adds. The deal has received regulatory approval in principle and is expected to receive final approval by 1 July. It emerged from a process of liquidation carried out by professional services firms PwC and Deloitte.
Tom Barrack, executive chairman of Colony Capital, said in the statement: “We are delighted to have crafted this comprehensive global solution for Abraaj and its stakeholders and sincerely hope that this can enable the process of rebuilding on all sides and also bring an end to the speculation that has swirled around Abraaj over the last months.”
Colony, which Barack founded in 1991, invests in healthcare, industrial and hospitality sectors, as well as private equity and private debt investments.
Abraaj on Monday was given breathing space when a Cayman Islands court approved its application for provisional liquidation, allowing the firm to negotiate an orderly restructuring process.
When Benjamin Revillon set up BEX Capital in 2010 to buy small stakes in high quality and well-known funds, he discovered the barriers to entry were a little too low.
"I found that trade very crowded," Revillon tells Secondaries Investor in an interview in the firm's Paris headquarters. "What I found was that the market had really transformed itself into a big volume game with people chasing returns and it becoming a seller's market. I felt that everything was pricey."
The former AlpInvest Partners and Deutsche Bank executive found a solution: pivot to buying stakes in secondaries funds and funds of funds themselves in a strategy he refers to as going back to the "original rulebook" of secondaries.
"You have all the ingredients," he says. "You have assets which are diversified, of high quality when filtered out by quality fund of funds managers and you tend to buy them at a discount to intrinsic value. "
[caption id="attachment_26285" align="alignleft" width="200"] Benjamin Revillon[/caption]
Over the last eight years BEX has transformed from a deal-by-deal model to raising two blindpool funds. Its latest, BEX Fund II, closed in September above its €80 million target on €120 million, according to PEI data.
Drivers of dealflow in this part of the market are the same as the broader market, Revillon says. LPs in secondaries and funds of funds want to be able to manage their portfolios in the same way they manage their portfolios of direct funds.
Acquiring interests in secondaries and funds of funds means the strategy must take into account various fees: those at the underlying fund level, those charged by the fund of funds or secondaries fund manager as well as any carried interest levied by those managers. Are discounts in the strategy low enough to make the play work, rather than bypassing the managers and acquiring the underlying fund stakes themselves?
Revillon says his strategy does. With funds of funds and secondaries managers reluctant to sell to competitor secondaries firms who would be getting a "look into their kitchen", competition is reduced. Pricing is therefore not pushed to the same high levels as high-quality buyout stakes, which often traded at a 10 percent premium to net asset value last year, according to a May report by Credit Suisse.
It can also be more efficient to acquire a fund of funds or secondaries stake in one go, rather than signing sales and purchase agreements for 25 separate vehicles, Revillon adds.
On the face of it, secondaries and funds of funds are similar vehicles, differentiated solely by the timing in which their underlying assets are acquired. When looking at them from a secondaries lens, notable differences emerge. Like funds of funds, secondaries funds are highly diversified vehicles but quality can be more patchy as secondaries managers acquire assets on an opportunistic basis, as opposed to a primary basis."[Secondaries funds] can be a mixed bag and relatively opaque in terms of assets and economics," Revillon says.
There are other elements to consider, such as secondaries being more expensive because managers always charge carried interest, which is not always the case with funds of funds. Leverage use in secondaries funds can further complicate things.
"There's no limit to financial engineering and creativity in secondaries funds, either with leverage facilities or deal financing," Revillon says.
While its giant Parisian counterpart Ardian raised the largest secondaries fund ever with its $10.8 billion haul for ASF VII and is seeking $12 billion for its latest iteration, BEX prefers to keep things small. Still, there's room for growth and dealflow is plentiful – BEX saw $3 billion worth of fund of funds and secondaries fund opportunities last year. Just how big the market is for stakes in secondaries and funds of funds is a question Revillon grapples with.
"€120 million is too small versus the opportunity," Revillon says, referring the firm's latest fund. The firm is still in the discovery phase as to what the optimal fund size would be, he adds.
With Fund II more than 60 percent deployed, a vehicle that better captures the size of the opportunity may be just around the corner.
Ardian has followed in the footsteps of Lexington Partners by choosing Chile as the base for its Latin American operations.
The Santiago office will house dedicated investment staff, including a secondaries deal origination team, according to a statement. It will be led by senior investor relations manager Nicolas Gazitua in coordination with New York office co-heads Mark Benedetti and Vladimir Colas.
“The Chilean office is an important step forward in our continued efforts to provide our global investor base with opportunities in high quality LatAm investments and superior returns," said head of Ardian US and member of the executive committee Benoît Verbrugghe. "We will also use the office to source secondary deals from potential LatAm sellers.”
The office will allow Ardian to grow its Latin American investor base, which comes mainly from Chile, Colombia and Peru, the statement noted, and to tap capital from Mexican and Brazilian limited partners aiming to diversify their holdings outside the continent.
The opening brings the firm's global office count to 14.
The Paris-headquartered investment manager already offers a number of strategies to its limited partners in the region, including secondaries, European direct buyouts, European real estate and global co-investments, according to the statement.
Lexington opened a Santiago office in 2016 in response to growing opportunities in the continent's secondaries market. Pantheon and HarbourVest Partners have regional headquarters in Bogota while Goldman Sachs Asset Management has an office in São Paulo, according to PEI data.
Ardian is in market with ASF VIII seeking a record-equalling $12 billion for secondaries, as Secondaries Investor reported in May.