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Adams Street to use capital-call facility on new $1.2 bln secondaries fund

  • Facility will cover up to 30 pct of aggregate commitments
  • New fund offers step-down management fee structure
  • Adams Street to seek opportunities among 2012-2015 vintages

Adams Street Partners’ new secondaries fund will use a capital-call facility to fund as much as 30 percent of its investable capital, according to Minnesota State Board of Investment memos.

“Adams Street Partners does not intend to use leverage as part of its underwriting process but plans to use a credit facility of up to 30 percent of aggregate commitments,” one memo says.

Adams Street set a $1.2 billion target for the fund. Minnesota committed up to $100 million to Adams Street Global Secondary Fund 6 on Feb. 23.

General partners use capital-call facilities to invest before drawing down the capital their fund investors pledge. The facilities shorten the time between when limited- partner capital is called and when it is returned, which increases the fund’s internal rate of return.

Adams Street’s previous secondaries fund, a $1.1 billion 2012 vintage, had generated a 1.8 percent internal rate of return as of Sept. 30, 2016, Minnesota documents show. Its 2009 vintage secondaries fund netted a 15.9 percent IRR and its 2004 fund was netting an 11 percent IRR as of that date.

Adams Street declined comment.

Step-down fee

Adams Street Partners is offering LPs a tiered management-fee structure that reduces the amount charged as LPs commit additional capital, according to the memos. Each investor will pay a 100-basis-point, or 1 percentage point, annual fee on the first $25 million they commit to Fund 6. Lower fees are charged as LPs commit additional capital above that $25 million threshold.

On committed amounts of $25 million to $50 million, Adams Street charges LPs 90 basis points. LPs pay 75 bps for amounts of $50 million to $100 million, 50 basis points for $100 million to $150 million, and 40 basis points for amounts above $150 million.

After Fund 6’s investment period concludes, LP management fees fall by an amount equal to 10 percent of their original fee each year.

As a result, management fees will vary depending on the size of the commitment, the memos say. For example, the expected annual management fee for Minnesota’s $100 million commitment would be around 60 bps, all told.

Fund 6 will acquire stakes in vehicles from three to eight years old. “The record levels of primary commitments made between 2012 and 2015 should provide ample amounts of deal flow,” a memo says.

Adams Street manages more than $5 billion in secondary investments through its stand-alone secondaries funds and fund-of-funds. Its secondaries business is led by Jeffrey Akers, alongside partners Troy Barnett, Gregory Holden, Pinal Nicum and Joseph Goldrick.

Action Item: More on Adams Street’s secondaries business: www.adamsstreetpartners.com

Chicago skyline as seen from Lake Michigan. Photo by Alastair Goldfisher, Venture Capital Journal.