Talking Top Quartile with Frank Borges and Tim Haviland of Landmark Partners

The vintage 2004 Landmark Equity Partners XII LP rang up an IRR of 25.2 percent for the Indiana Public Retirement System as of March 31, according to the Buyouts public pension fund database. That’s well ahead of the 22.6 percent top-quartile threshold. 

Q: Talk about the fundraising environment at the time and how much you raised.

Borges: Landmark is a pioneer of the secondary market. This was our 12th fund. Quite frankly, we’ve never focused on the environment as much as we focus on doing the absolute best job we can in investing the capital and generating returns for our investors. To the extent that we do that and do it well, it insulates us from what’s happening in the fundraising environment. It’s not as important because we’ve enjoyed strong support from our investors.

During that period in 2004 we were in the midst of investing Fund XI when we came across a very large portfolio, which Tim will describe, which required us to go out and raise additional capital, which was Fund XII. We were able to raise Fund XII within a very short period of time, principally from existing investors as well as new investors who had the opportunity to see the portfolio — how well constructed it was — and to see how we focused on our underwriting. With that, we were able to raise that capital, in literally, a two-month period of time.

Haviland: As the market evolved — not many people knew about secondary funds in 1989 — our funds began to grow with the opportunity set. We could have raised much larger funds, but we didn’t want to have that misalignment of dollars to deploy versus the opportunities in the market. We had just raised Fund XI and were in the middle of deploying that and along came a larger transaction. We were very comfortable going back to our existing investors, who had expressed an appetite to do more with us. That allowed us to raise Fund XII in plus or minus 60 days. We closed in December of 2004. It was more of a specific fundraise.

So you focused Fund XII on one large portfolio. Could you get more specific?

Haviland: This was a large financial institution that sold a $1 billion portfolio. A portion of that portfolio went into Fund XI as well as Fund XII. It had all the attributes you look for. It had the diversification of 85 individual partnership interests. It was exposed to 1,000 underlying companies and exposure to vintage years that ran from 1997 to 2004. Maturity in the underlying fund and maturity in the underlying investments are very important to us. All of those attributes in this portfolio provided the foundation to drive performance.

Did the financial crisis impact the fund in any significant way?

Haviland: The risk you have in secondary purchases is making sure you don’t buy at inflated values or not understanding the intrinsic value of the assets. We were able to effectively diligence them because of our long track record and database. We knew what we were buying, plus the diversification of the portfolio didn’t give us exposure to any one fund. It was an index on the entire private equity industry.

The fund was active during the financial crisis. Because of the maturity of the fund investments in the pool, we had years when the distributions were very strong and we had years when it slowed down during the crisis. About 75 percent of the portfolio was in buyout-related investments.

Market statistics show that when the public market slows down and the opportunity for public stock offerings goes away, the merger and acquisition market increases. During the crisis, we saw increased liquidity coming from M&A deals versus public offerings.

We’re not trying to be market timers, but over the long haul, we’re trying to build a portfolio to give our investors returns over a period of time. The quality of what we bought … helped us weather the tough years.

What drove performance?

Borges: We focus on broadly diversified funds. No single asset or transaction or single manager moves the needle. Together, the result was consistent, strong performance.

How did the fund contribute to the evolution of the firm?

Haviland: I don’t know if it shaped the evolution as much as it reinforced the principles of the firm: Raise funds in a size we’re comfortable in deploying over the investment period [and] know we have a strong investor base behind us with an appetite to do transactions both inside the fund and alongside it. It was a continuation of what we were trying to achieve with growing our brand and our confidence in deploying capital.

Borges: Fund XII was consistent with our strategy of raising digestible amounts of capital, putting it to work well, generating strong performance and continuing to deliver for our investors.

You mentioned the secondary market was not as widely watched 10 and 20 years ago. Any more color on that?

Haviland: According to market data, there was $8.7 billion raised in 2004 for secondary funds. You had some new entrants and some investment banks raising capital.

Borges: To put it into context, today the fundraising number for secondaries is closer to $29 billion. It shows you how the market has evolved. The $8.7 billion raised [by all secondary funds] in 2004 was across 25 funds. That was the market back then. On average, secondary funds were $375 million to $400 million [each]. We raised $427 million for Fund XII.

A lot of secondary shops are now raising funds of $1 billion or more. Why is overall fundraising so strong for secondary funds?

Borges: Institutional investors over the years have increased their allocations to private equity. Their assets under management are pretty significant. You’ve got some large LPs that have $5 billion or $10 billion or $15 billion private equity portfolios. They’re now more actively managing those portfolios. If you think about it, a lot of institutions early on had no exposure to private equity. Then they’d move to 3 percent, then 7 percent and then 10 percent or higher. The secondary private equity market follows the primary market. If you look at the size and scale of the underlying primary market, the dry powder seems staggering. But it’s small compared to the amounts in the underlying primary market.

How has your diversification into real estate helped Landmark?

Havliand: Sometimes the seller is selling both private equity and real estate fund stakes. Being a buyer that can handle that entire portfolio purchase is a great differentiator for us.

Borges: We’ve now expanded beyond private equity and real estate in to real assets: infrastructure, oil and gas, etc.

Any milestones you’d like to mention?

Haviland: We just celebrated our 25th anniversary. We just completed the closing of our 15th secondary fund and our sixth real estate fund. From $427 million in Fund XII, we raised $3.25 billion for Fund XV. It could have been more, since it was oversubscribed.

Action Item: Direct investor relations questions to VP Emily-Jane Finigan at or 212 468 5668.