In a deal heralded as the largest single private equity secondaries acquisition from a pension fund to date, Coller Capital in July snapped up Shell Pension Trust’s private equity portfolio. The price paid for the portfolio, which had a December 1997 GP carry value of $265 million (ecu 239 million) and contains 15 fund positions, was not disclosed. The deal instantly took Coller International Partners II (CIP II) to effective full investment two days after it held a final closing on $220 million.
Remarkably, Coller Capital and Shell completed the secondary acquisition in just two-and-a-half weeks. Coller Capital’s ability to deliver within the tight schedule stipulated by the vendor was a decisive factor in its winning the deal in the face of competition from a number of other bidders.
Shell Pension Trust’s decision to sell the portfolio was prompted by an in-house asset allocation study competed earlier this year. Fred Bullough, the pension fund’s director of private investment, said the allocation study recommended a move from a 6% allocation to alternatives to a straight 75% equities/25% fixed-income securities split with no alternative asset allocation.
According to Fred Bullough, the shift in allocation was prompted more by strategic considerations and a strong sellers’ market for secondary positions than by unsatisfactory returns from private equity, although he indicated that the pension is unlikely to return to private equity investment in the near future.
Regarding the sale to Coller Capital, he commented “The portfolio consists of some of the leading and most respected general partners in the industry from whom we received invaluable support over the years. We are very pleased to have been able to bring in replacement limited partners that well exceeded everyone’s expectations”. The portfolio sold included partnerships from leading managers – including E.M. Warburg, Pincus & Co., Zell/Chilmark, American Industrial Partners, Cornerstone Equity Partners, Landmark Partners, Trust Co. of the West and BC Partners – and comprised underlying holdings in 169 unquoted and 78 quoted companies, with 75% of investments by value in the US. The funds’ investments were made between 1989 and 1994.
Swift Return to Fund-Raising Market
That Shell’s decision to sell coincided so closely with the conclusion of Coller Capital’s latest fund-raising effort was fortuitous. Investors in the fund, which include Baring Asset Management Group, British Aerospace Pension Fund, CalPERS, Castle Private Equity and State of Michigan Retirement Systems, would certainly not have envisaged the fund reaching full investment before the year end. Coller Capital liaised closely with its LPs during the negotiations with Shell, and director Marlene Groen said the investors were very happy for the fund to seize such an outstanding opportunity.
Although CIP II originally envisaged acquiring the bulk of its secondaries portfolio from European rather than US sellers, the profile of the positions acquired conformed closely to the portfolio composition model first posited for the fund. According to Marlene Groen “The only surprise is that we didn’t expect to make all the acquisitions at the same time”. Before the Shell transaction, CIP II had already acquired a position in a UK high-tech fund and had a number of other deals in the pipeline, Marlene Groen added.
Although it was a major transaction, the Shell portfolio sale constituted only one opportunity in a burgeoning international secondaries market. With its coffers so unexpectedly empty, Coller Capital faces a swift return to fund-raising mode and has already begun pre-marketing for Coller International Partners III.
The volume of secondary opportunities currently available can be gauged from the fact that this vehicle’s original $350 million target has already been revised upwards to $400 million.