Investment banking giant Goldman Sachs is preparing to raise another secondary fund, this time setting its sights on more than $1 billion, according to a published report. Goldman declined to comment, but sources familiar with the firm say the plans are at a very early stage.
The upcoming fund would follow Goldman’s last secondary fund, Goldman Sachs Vintage II, which closed in 2001 with $1.1 billion, according to Thomson Venture Economics (publisher of VCJ). The firm also raised GS Vintage II Offshore in 2001 with $385 million.
Past limited partners in Goldman’s private equity funds include Chrysler, Sara Lee, Sony, Southern Co. Services, Warner-Lambert and Weyerhaeuser.
Last year, Goldman Sachs’ secondary team expected to be finished with its current investment program by the end of the year.
The New York-based firm’s secondary group, which raised its first fund in 1998, typically buys buyout interests from large institutional investors. Its GS Vintage Funds recently acted as a lead investor in Vision Capital’s acquisition of the entire investment portfolio of CS Structured Credit Fund.
Goldman announced last September that it raised its third mezzanine fund, GS Mezzanine Partners III, with $2.7 billion in available capital. The firm claimed that the fund was the largest mezzanine fund ever raised.
The new fund, if raised, would add Goldman to the growing list of large funds that have been recently raised or are under way. Secondary private equity investors raised more than $4.2 billion for new funds in 2003 and more than $5 billion in 2002, according to Thomson Venture Economics. Other large secondary players currently raising funds include Pantheon Ventures and Paul Capital Partners, which are seeking $600 million and $800 million funds, respectively.
Capping a banner year for fund-raising for the secondary private equity market, Credit Suisse First Boston closed on two secondary funds for a combined $1.9 billion: CSFB Strategic Partners II, which will seek positions in buyout and mezzanine funds, closed with $1.6 billion and CSFB Strategic Partners II RE, a $300 million co-investment fund focused on secondary real estate investments. Last summer, Lexington Partners announced the closing of Lexington Capital Partners V with $2 billion.
CPPIB and Paul Capital Close $310M Deal
Toronto’s CPP Investment Board (CPPIB) and San Francisco’s Paul Capital Partners are teaming up to buy a portfolio of secondary interests, primarily U.S. buyout funds. CPPIB will commit $120 million to CPP Investment Board-Paul Capital Holdings II, a $310 million limited partnership that will be managed by Paul Capital Partners and acquire the secondary portfolio.
CPPIB was founded in 1997 and has a total of $4.6 billion committed to 42 limited partnerships in 36 private equity firms. Secondary firms make up about 17.5% of CPPIB’s private equity portfolio. The total Canadian Pension Plan portfolio has about $49 billion under management and expects to allocate up to 10% of its total portfolio to private equity.
The announcement indicates that CPPIB’s appetite for private equity has not diminished since the departure of Mark Weisdorf, vice president of private markets, last December. Weisdorf authored the investment board’s private equity strategy, and CPPIB entered the private equity market soon after Weisdorf’s arrival two years ago. At the time of his departure, CPPIB cited differences in management philosophy as the reason for Weisdorf’s resignation.
Thomas Tutsch was appointed interim head of CPPIB’s private market investments in January. Tutsch previously worked as a private equity investment manager for BMO Nesbitt Burns Equity Partners, a BMO subsidiary. A spokesperson for CPPIB declined to predict when a permanent vice president of private markets would be hired.
Paul Capital has launched its effort to raise Paul Capital Partners VIII. The secondary firm expects to close on $800 million. The fund will be dedicated to purchasing limited partnership interests in buyout, mezzanine partnership and venture capital funds and portfolios. Paul Capital recently won a $125 million commitment to its Paul Capital Top-Tier Investments II fund from the Florida State Board of Administration. The Top-Tier fund, a vintage 2002 fund-of-funds that now has over $500 million, makes both primary and secondary investments in venture funds.
Vision Capital Makes Big Buy
With some large deals under its belt, investment bank Vision Capital sees a bright future in secondary deals, at least on the buyout side. The London-based firm announced it acquired the investment portfolio of CS Structured Credit Fund. It’s a secondary buyout deal for a direct portfolio of companies, a kind of deal that Vision and others call synthetic secondaries.
The portfolio consists of five investments for controlling stakes in pub and tavern operator Avebury Taverns and Elegant Hotels Group, and interests in consumer debt firm Cabot Financial, highway rest area company RoadChef and finance company Resource Partners Group. CS Structured Credit Fund is managed by Cabot Square Capital. Last year, London-based Cabot Square closed on more than $322 million for its second fund, CS Capital Partners II.
The companies in the portfolio are being acquired by an investment partnership of $189 million. Goldman Sachs’ GS Vintage Funds and Landmark Partners are lead investors in the partnership, which includes other unnamed investors. Goldman Sachs Asset Management’s Private Equity Group has closed a number of direct portfolio transactions.
Synthetic secondaries allow primary fund investors to exit from an entire portfolio in a single transaction. Traditional secondary transactions involve secondary buyers obtaining interests in a portion of a private equity fund and do not involve holding direct interests in portfolio companies. Secondary buyouts usually involve a single company transaction between two or more firms acting as buyer or seller rather than the interests of several companies changing hands.
This deal marks the first time that Landmark has participated in such a transaction with Vision. Vision’s partnership with Goldman Sachs last year enabled Vision to buy a portfolio of companies from Morgan Grenfell Equity Partners (MGEP) funds. The portfolio represented the majority of MGEP’s investments. GS Vintage Funds II invested along with Vision to make the deal, which included interests in packaging manufacturer AB Cergo Group, grinding wheel maker Abrasive Technologies Holding, manufacturing and chemical supplier Deloro Stellite Group and Shearings Group, a UK travel agency.
Vision Capital was founded in 1997 by former Smith Barney European investment banking executive Julian Mash. The firm has closed on or advised more than 20 transactions, with 10 of those transactions involving private equity firms and private equity portfolio companies. The 11-person investment team focuses on European investments in the form of synthetic secondaries and advisory services.
Capital Z Buys Stakes in Hutton Collins
Located in the trendy SoHo section of New York City, the partners of Capital Z Investment Partners might be expected to occasionally stock up on European goods available in SoHo’s multitude of boutiques. Capital Z did do a bit of European shopping recently, but instead of coming back from their lunch break with a $200 pair of shoes, the partners at Capital Z brought an interest in Hutton Collins Mezzanine Fund.
Capital Z paid $44 million to UK banking and financial advisor Abbey National for the interests. Capital Z also invested an additional $50 million into the fund. The London-based Hutton Collins mezzanine fund was launched in 2002 and raised $200 million. Capital Z’s additional commitment brings its total to $250 million. Hutton Collins specializes in European buyout fund investment.
Hutton Collins has participated in some large buyout deals since the inception of its mezzanine fund. It took part in the $2.4 billion buyout of French transmission tower operator Telediffusion de France and the $1.5 billion buyout of UK legal gambling operator Coral.
Abbey National has been selling off its private equity LP interests. Coller Capital struck a deal with Abbey National that let Abbey get rid of almost all of its private equity holdings. Coller acquired 41 private equity funds and 19 European-based portfolio companies with a transaction that closed in December. The deal between the two London-based firms set a new record as the largest single-buyer secondary private equity transaction to date, with Abbey’s commitments totaling about $1.33 billion. Coller Capital paid about $550 million for the assets, including a secured loan note of $286 million.
Capital Z has approximately $4 billion under management in two separate entities: Capital Z Investment Partners, a private equity investor and manager with more than $850 million in private equity commitments, and Capital Z Financial Services Partners. The New York-based firm has an office in Hong Kong.