Private Equity Group: AXA Private Equity
Latest Fund: AXA Secondary Fund V LP
Size of Main Fund: $7.1 Billion
Primary Fund of Funds Sidecar: $900 Million
Original Main Fund Target: $3.5 Billion
The secondary fund, AXA Secondary Fund V LP, is the largest secondary fund ever raised, beating out the $7 billion raised for secondary private equity investments by Lexington Capital’s Lexington Capital Partners VIII LP last year. AXA said it now manages $19 billion in secondary assets in a portfolio of more than 800 funds.
It has been reported since late last year that AXA, the giant French insurer, was looking to the possibility of selling its private equity unit. Dominique Senequier, the unit’s chief executive, was reported to be seeking a management-led buyout that would be financed in part by one of its suitors. A management-led buyout would offer incentives for rewarding key employees by offering them a bigger stake of their own success.
The better than expected fundraising efforts for Fund V will only serve to raise the stakes in the unit’s possible sale, as well as the possibility that AXA discovers greater rewards for holding on to the unit.
So far, Fund V has attracted significant interest from investors, including a $75 million commitment in June by the Pennsylvania State Employees’ Retirement System.
Banks, which urgently need to fortify their capital buffer, are in a rush to offload the private equity assets they spent billions on in the heady days before the financial crisis, causing a flurry in secondary sales.
“AXA Private Equity predicts a significant increase in activity in the secondary market over the next two years,” the investment arm of French insurance group AXA, said in a statement on June 18.
The firm said it expects between $40 billion and $50 billion of bank assets to come up as a result.
New rules for capital, known as Basel III, make it much more costly for banks to hold risky assets, so banks need to free up capital to support their core lending and investment banking businesses. Private equity portfolios are among the assets requiring higher capital buffers, making them an obvious target for many banks to shed.
AXA Private Equity initially had sought some $3.5 billion for its fund but ended up raising more than double that amount, at $7.1 billion. An additional $900 million will go towards its primary fund of funds, the group said.
Traditionally, private equity firms buy companies with large amounts of debt financing. They then aggressively cut costs, improve performance, and sell it for a profit, often through an initial public stock offering.
Last year, AXA bought a $740 million portfolio of private equity holdings from Barclays and earlier acquired a bumper $1.7 billion portfolio from Citigroup.
Its fundraising success follows U.S. Group Lexington Capital, which last year raised $7 billion, then the largest ever fund raised by a secondaries specialist. Rival Coller Capital is seeking to raise $5 billion.
“The banks continue to sell. … There is no lack of dealflow, and there is no lack of demand for that dealflow,” said Thomas Liaudet, partner at private equity advisory firm Campbell Lutyens.
Deal-making in the private equity industry has been tepid ever since the onset of the financial crisis. Not only have buyout firms lost their access to funding, it is also harder for them to sell companies to stock markets, which are virtually shut for new entrants because of the weak global economy and the euro zone debt crisis.