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J.P. Morgan Enters U.S. Secondary Market

Firm: J.P. Morgan

Funds: J P Morgan Secondary Private Equity Investors LLC, J.P. Morgan Secondary Private Equity Investors Offshore Special L.P.

Amount Raised: $1.06 billion

The asset management arm of J.P. Morgan has raised a just over $1 billion toward a fund targeting investments in the secondary market, adding to the flood of capital that has recently rushed into the sector.

According to a regulatory filing, the fund, J. P. Morgan Secondary Private Equity Investors LLC, raised $781.2 million from 324 investments, while a parallel offshore fund, J.P. Morgan Secondary Private Equity Investors Offshore Special L.P., raised an additional $280.3 million from 198 investors. The filings indicate that “No further sales are expected to take place.”

The firm has entered the secondary market in a much smaller way in the U.K., raising $93.4 million to invest in secondary assets through its publicly-traded $500 million fund, JP Morgan Private Equity Ltd. The fund came under the management of JP Morgan Asset Management in 2008 when Bear Stearns was acquired by J.P. Morgan. A firm representative declined to comment.

The funds follow an influx of interest in the secondary market, despite a lack of activity. Goldman Sachs last year raised the largest ever dedicated secondary fund at $5.5 billion. That fund was underwater when it closed; the firm cited pricing missteps as one reason for the fund’s performance, according to internal documents obtained by PeHUB.com, a sister publication of Buyouts.

The issue of pricing, and the potential to overpay, has kept many traditional secondary investors on the sidelines this year. Recent data from qualified matching service provider NYPPEX shows those buyers may have missed their chance, as pricing in the third quarter of this year actually rose. After hitting a low point earlier this year, the median bid for a private equity fund stake has increased by 29.3 percent to 51.58 percent of NAV (net asset value). Yet an excess of new private equity secondary funds continue to gather commitments. At least 26 funds dedicated to secondary investments were in the market as of the second quarter of this year.

Stanford University, which manages around $12.6 billion in assets and has an estimated $5 billion in unfunded commitments in alternative assets, recently launched one of the largest secondary sales of the year with the help of advisory firm Cogent Partners. The endowment placed almost all of its alternative asset portfolio on the market with the intention of doing “synthetic” secondary deals wherein buyers and sellers form a joint venture, allowing buyers to take over part of the unfunded commitments in exchange for part of the return.