Willowridge’s Newman: We can only pay what we want to pay with prices stuck

Tail-end specialist Willowridge Partners closed its latest flagship, Amberbrook IX, on $900 million earlier this month. The GP committed $50 million to the vehicle, or about 5 percent of the fund.

Secondaries Investor caught up with founder and partner Jerry Newman about the raise and trends driving activity in tail-end secondaries.

What type of investors committed to your latest flagship fundraise and what attracted new investors to your fund?

The traditional investors – endowments, foundations and pension funds – are stuck with the denominator effect in which their total assets are down and so they are over allocated to alternatives; they have little flexibility. For our new fund, we ended up with a lot more numbers of investors than we have had in the past. There are many new investors who did not have exposure to the asset class. Many of the new investors came from consultants, investment advisers, RIAs and word of mouth.

What resonated with investors is that we have historically given back cash every quarter after the first year. We are not using leverage or using our capital call facility aggressively. Eighty-one percent of the investors in our prior fund invested in the new fund. For our first eight funds, seven of the funds have given back over 100 percent of capital called within six years of the fund’s first investment. We have had a double-digit net IRR in seven out of the eight funds; six of our funds have been around 20 percent net to the limited partners.

In every fund we have ever raised, the GP has committed a minimum of 5 percent of the money in cash; we are not using notes or fee offsets. The GP is putting our money where our mouths are. We are usually the second or third largest investor.

What will Amberbrook IX target in terms of activity?

We are doing 40-50 transactions a year. We are diversified and not taking concentrated bets. For every LP interest that we look at, we price 80 percent of the expected proceeds that we will receive if we buy that particular LP interest.

Our average deal in our prior fund was about $5 million. In our new fund, which we started investing on 31 March 2023, we have done about 20 deals worth about $90 million – so our average per deal is a little lower.

We are looking for smaller, more mature LP deals that don’t make sense for our larger secondary peers. At the same time, the sellers we work with are usually selling for administrative purposes and the assets are not a meaningful part of their portfolio. We have been in the business for 28 years and have many relationships with both GPs and LPs. We started investing early in the venture funds, so we are in a lot of the [brand name] venture funds for many years.

How are you currently navigating the bid-ask spread as a tail end specialist?

Prices are stuck at the last round values. Sellers want the prices they could have had last year. We try to do the best deals that we can in a given year, and the important thing is to spread our investments over three to four years to have vintage-year diversification. I was just on a call 10 minutes ago, and they said they wanted 70-80 [percent of NAV] for the LP interests; we think the value is a lot lower. How do you bridge the gap? The answer is we can only pay what we want to pay.

Jerry Newman is the founder of Willowridge Partners and established its first fund in 1995. He has been investing in private equity funds and mid-market direct deals for more than 30 years.