What is a secondary fund?
30/07/2015
Diego Gutiérrez
What is a secondary fund?
A secondary fund is a fund whose business is to buy investees from other funds. This type of fund is growing considerably. Last year these funds recorded record fundraising figures of $29,000M, and now we have news that Lexington Partners has closed the largest secondary fund in history with $100,100M. In Spain these funds have also been in the news lately, Arcano has set up a new fund of funds and Portobello has sold a block of 7 investees to a secondary fund led by the giant HarbourVest.

 

Lexington closes its eighth fund

Lexington Partners has closed the largest secondary fund in history, with $10.1bn

 With this fund, Lexington has managed to exceed not only the triggering capacity of all the bank's previous instruments, but also the initial fundraising projections set at $8 billion. Around 300 contributors from various parts of the world - USA, Canada, UK, Europe, Asia, Latin America, Australia and the Middle East - have contributed to reach the final amount.

 But Lexington is not the only player in the sector. , there are currently three secondariesmillionaires in the process of fundraising: Coller Capital, Pantheon and Partners Group,  

The secondary market in Spain

In the last two months the secondary market has been the protagonist in Spain. As we commented in a post a few days ago, Portobello has sold a block of seven investee companies to a secondary fund led by HarboourVest. Portobello has only kept the acquisitions from 2014 onwards , the cannery IAN, the geriatric group Vitalia and the most recent addition, Eysa, which specialises in parking services.

With this formula, Portobello manages to kill two birds with one stone: with the proceeds from the transaction it will be able to remunerate the investors of its second fund, while at the same time helping to satisfy the strong investor appetite of some of them by providing them with a greater stake in the portfolio companies through this secondary vehicle, which will also continue to be managed by the Spanish entity. So much so that the firm will lend its name to the new fund, christened Portobello Secondary Fund I.

On the other hand, we have learned that Arcano has set up a new €100M fund of funds exclusively among Spanish investors to invest in secondaries. 

Focused on the US and Europe, ASF II expects to achieve a gross IRR (return) of 15%-20% and a multiple of between 1.5 and 1.7 times invested capital, which will be allocated to around 15 funds with a combined portfolio of around 200 companies. During the capital raising period (fund raising), the vehicle has invested almost 50% of the fund, and plans to do the same with another 30% before the end of this year, with a view to being fully invested by June next year.

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