Goldman Sachs today announced that it had raised $5.5 billion for its fifth secondaries fund, making it the largest such vehicle of all time. What Goldman didn’t announce, however, was that it’s already marked down the fund’s portfolio by up to 12 percent.
According to an investor letter obtained by peHUB, Goldman had called down 17% of the fund through the end of 2008 (although not all $5.5b was raised yet). This came via two calls: One last August and a slightly larger one last November. By December 31, however, Goldman was receiving guidance from GPs that the portfolio would be marked down between 5% and 9 percent. Once fees and expenses were factored in, the markdown deepened to between 7% and 12 percent.
The letter reads, in part:
“For the approximately 17% of Vintage V that has been deployed into secondary opportunities to date we are generally enthusiastic about the quality and price of the portfolios we purchased over the second half of 2008. We believe the pricing and structure of these transactions reflected the difficult backdrop of the financial and economic environment. Nevertheless, due to the severe decline in comparable multiples, the implementation of FAS 157 and the impact of foreign currency fluctuations on some of our non-dollar denominated investments, the early guidance from the general partners is that portfolios we have purchased will be marked down…”
In other words, Goldman overpaid.
It’s understandable that values would have dropped from the August call, particularly given that many of those deals might have been signed several months earlier. But how is the overall portfolio down, when Goldman called down a majority of the 17% in November? Secondaries were trading well below GP marks since at least September, and both those GPs and Goldman were well aware of issues like FAS 157. Almost seems like Goldman paid par for some of the latter stuff, although that’s truly difficult to believe.
If nothing else, these numbers illustrate how the secondaries market is never a gimme, even when it should be.