LONDON – Specialist private equity fund-of-funds manager and investment adviser Pantheon Ventures at the end of September closed on more than $150 million for its Pantheon Global Secondary Fund, which will be capped at $500 million.
Although the fund ranks as the group’s first dedicated secondaries vehicle, Pantheon is one of the oldest secondary investors, completing 26 significant secondary transactions since 1987. These have so far been financed through the GBP146 million ($241.7 million) fund-of-funds investment trust Pantheon International Participations (PIP), which acquires both primary and secondary fund positions.
In recent months, in the wake of Coller Capital’s and Castle’s acquisition of the $250 million Shell secondaries portfolio, it has become obvious that some portfolios of interest are larger than what PIP is able to bid on – hence Pantheon’s decision to launch a dedicated secondary limited partnership to maintain and reinforce its leading market position.
Pantheon chairman Rhoddy Swire identifies continuing restructuring and consolidation in the financial services sector, together with the recent explosion in private equity fund raising, as major drivers of current growth in the secondary market. Pantheon estimates that between 3% and 5% of fund interests eventually change hands. Given that global commitments to private equity in 1998 were up 35% the previous year and now have more than doubled in two years, it seems reasonable to assume that the flow of secondary opportunities will continue to increase during the next few years.
Increasing competition to buy secondary interests, together with vendors’ increasing awareness of what they are selling, means that pricing for quality portfolios is keen. Swire said, however, that the art of secondary investing “is not winning the auction, but closing the deal.”
In the secondary market, Pantheon also derives valuable synergies from its status as a leading primary fund-of-funds manager. Swire predicts that Pantheon Global Secondary Fund will be invested over the next three years. PIP will remain an active secondary player, co-investing with the Pantheon Global Secondary Fund in a pre-set ratio, taking 50% of deals valued at up to $50 million and 25% of any portfolio thereafter.
All the capital from Pantheon Global Secondaries Fund’s first close came from existing Pantheon clients, including pension funds, an insurance company and an investment company. The group expects to add a number of new investors, as well as further repeat customers, in a series of rolling closes. Like the Pantheon USA III fund-of-funds, which closed on $455 million in June, the Global Secondary Fund will include a parallel L.P. to accommodate the needs of ERISA investors.
At the end of October, Pantheon will also enter the market with a new European fund-of-funds destined to succeed the euro 214 million ($229.7 million) Pantheon EURO I vehicle, which has nearly completed its new fund commitment program.