The Next Private Equity IPO

The next private equity firm going public is… Lehman Brothers. Ok, Lehman isn’t really a private equity firm, and it’s already public, but it nonetheless is planning to list a private equity fund-of-funds on the Euronext Amsterdam.

In a formal statement, Lehman said that it would make a substantial investment in the fund, and bear all of the issuance costs. It did not specifically a target capitalization, but an earlier Bloomberg report put the figure at $500 million.

I believe that this would be the first listed private equity fund-of-funds, although there must be at least one more somewhere in Europe. So in the absence of recognizable precedent, a few questions:

1. Will the listed F-o-F invest alongside Lehman Brothers Crossroads XVIII, a traditional (read: private) F-o-F that quietly closed earlier this year on $1.5 billion? If so, is it pro rata? Were LPs informed ahead of time? Will it have separate managers who can pick and choose?

2. What will be the listed F-o-F’s disclosure requirements, in terms of its portfolio holdings. Will it have to disclose fund-specific IRRs? If so, it might become less popular than UTIMCO circa 2004. Again – what do the private F-o-F LPs think?

3. Why do this at all? It’s not a matter of founder liquidity (i.e., Blackstone) – so I’d assume it’s the desire to add some quick cash. But why not just try to raise $2 billion for the private F-o-F? Unless they did…

Here’s the statement issued by Lehman at market close today:

Lehman Brothers Private Equity, a unit of Lehman Brothers Holdings Inc. (together “Lehman Brothers”), today  announces that  it  is considering giving investors access  to its leading private equity investment platform through a  new Euronext Amsterdam-listed private equity fund of funds vehicle.

  • Subject to the transaction proceeding, Lehman Brothers is expected to closely align its interests with investors in the new fund by:
  • Making a substantial investment in the listed vehicle
  • Committing IPO proceeds fully to private equity at launch
  • Ensuring fees are competitive and mainly performance-linked
  • Bearing all issuance costs itself

Launch is expected to take place in 2007. Further details of the structure will be announced as appropriate in due course.