Pomona seeks improved access

Pomona Capital, best known as a US secondaries specialist, is in the process of raising its second fund-of-funds for primary positions. Although the firm set an initial $50 million target, as for its first primaries vehicle, chief executive officer Michael Granoff anticipates that Pomona Partnership Holdings II (Pomona PH II) may bring in closer to $100 million.

Michael Granoff summarises the principal problems facing would-be investors in unquoted funds as: identifying top performing managers; gaining access to the best venture funds; and meeting the colossal minimum commitments for buyout funds.

Inverting the principle whereby it makes good sense for a conventional fund-of-funds to incorporate a secondaries component, the Pomona PH II proposition hinges on taking advantage of the secondaries side of Pomona’s business.

Because, thanks to its secondary holdings, Pomona is seen by managers as an existing investor, the group can gain access to funds that are closed to new investors. Similarly, its existing investor status sometimes enables Pomona to participate at less than the official minimum commitment level in larger funds. Given that Pomona holds secondary positions in more than 60 of what Michael Granoff describes as better known venture capital and buyout partnerships’, the potential entree Pomona PH II can offer to funds from top-performing managers makes a compelling investment argument.

Pomona expects to hold an early autumn close at around the $25 million mark, drawing on existing investors. The firm also sees the current fund-raising exercise as an excellent opportunity to broaden its investor base not least because larger volumes of capital can more readily be deployed in primaries than in secondaries and is looking to Europe, where a couple of potential participants have already expressed interest.

The new vehicle has so far lined up commitments to funds from Weiss, Peck & Greer, Hellman & Friedman, Silverlake and Doll.

Pomona opened an office in London at the beginning of this year to develop the European side of its secondaries business. Although Pomona PH II will have the capacity to invest in European vehicles, the great bulk of its investments are likely to piggyback’ on the US secondaries business. “Because our ability to understand and access European funds is growing all the time, we expect them to comprise a bigger element of our third primary fund,” Granoff says.

In a market that is flooded with funds-of-funds, the key is to deliver upper quartile returns as Granoff expresses it, medians do no-one any favours’.