Pantheon closes secondary fund

Specialist private equity fund-of-funds manager and investment adviser Pantheon Ventures has closed more than $150 million for its Global Secondary Fund. The fund will be capped at $500 million (euros 460 million).

Although Pantheon Global Secondary Fund ranks as the group’s first dedicated secondaries vehicle, Pantheon itself is one of the longest established secondaries investors. Since 1987, Pantheon has completed 26 significant secondary transactions. These have so far been financed through the GBP146 million ($244 million) fund-of-funds investment trust Pantheon International Participations (PIP), which acquires both primary and secondary fund positions.

During 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 of the portfolios of interests becoming available are of a greater size than PIP is able to bid on – hence Pantheon’s decision to launch a dedicated secondary LP 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 three and five per cent of fund interests will eventually change hands. Given that global commitments to private equity in 1998 were up 35 per cent on the previous year and have now 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 stresses, however, that the art of secondary investing is not winning the auction, but closing the deal’. Here, Pantheon expects its long experience will give it the edge over more recent market entrants. “The legals [involved in a secondary purchase] are more complex than anyone anticipates,” says Swire, referring back to a 1989 deal where Pantheon acquired a portfolio comprising interests in 27 funds in 17 different jurisdictions. “Our greatest value added is where things are complicated,” adds Swire. “We’ve been in the market a long time now, and can exploit that.”

In the secondary market, Pantheon also derives valuable synergies from its status as a leading primary fund-of-funds manager: “Because Pantheon has a significant new fund programme, managers talk to us, and we can create relationships. Managers like us in because we may also have capital for their next fund and are not a dead hand’,” Swire explains.

He 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 per cent of deals valued at up to $50 million and 25 per cent of any portfolio thereafter.

All the capital Pantheon Global Secondaries Fund signed at its 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 this June, the Global Secondary Fund will include a parallel LP to accommodate the needs of ERISA investors.

At the time of going to press, Pantheon was scheduled to enter the market with a new European fund-of-funds destined to succeed the euros 214 million Pantheon EURO I vehicle, which has nearly completed its new fund commitment programme.

Pantheon currently manages some GBP2 billion ($3.2 billion) invested in more than 350 private equity funds across more than 30 countries worldwide.