Goldman, GIC restructure two older Vector funds

  • Process involves Funds II and III
  • Focused on two investments: Corel and WatchGuard
  • Vector closed Fund V in early 2017

Goldman Sachs and Government of Singapore Investment Corp led the restructuring of two older Vector Capital funds whose remaining value was wrapped up mostly in two investments, three sources told Buyouts.

The transaction involved Vector Capital’s second and third funds along with co-investments. Vector Fund II is a 1999 vintage $150 million pool, and Fund III, a 2005 vintage, raised $350 million.

About $450 million of largely unrealized value was wrapped up in two investments: software business Corel and WatchGuard, which provides network security to small and mid-sized businesses. Those investments will be transferred into a new vehicle capitalized by the new investors, giving Vector more time to exit them.

The majority of existing investors in Funds II and III chose to sell their stakes in the funds, one of the sources said. Investors sold at a price above par, the source said, though the exact price is not clear. Nor is the reference date used to price the LP interests.

Evercore was intermediary on the transaction. Goldman Sachs did not respond to a request for comment. GIC could not be reached for comment.

The two funds are strong performers and the restructuring was not the result of distress, sources said. It was intended to provide existing LPs with liquidity while making sure the GP had more time to maximize value in older investments.

Vector in early 2017 closed its fifth fund on $1.4 billion, beating its $1.2 billion target.  

Vector has an unusual fund structure: It had no defined investment period in past funds, until it imposed a six-year investment period on Fund V.

“This deal gives management runway, flexibility and fresh capital to go out and make acquisitions,” one of the sources said.

Fund II was generating a 2.5x net multiple and 15 percent net internal rate of return as of March 31, 2017, one of the sources said. Fund III was producing a 2.4x net multiple and a 15 percent net IRR as of that date, the source said.

San Francisco-based Vector, which focuses on tech investments, spun out of Ziff Brothers Investments in 1997. Alex Slusky, managing director and chief investment officer, formed the firm.

GPs are more frequently turning to the secondary market to find ways to hold certain investments longer, while delivering liquidity to LPs in older funds.

Restructurings have become more routine as the deals have become friendlier to LPs, offering so-called status-quo options to existing LPs who choose to stay with the GP on substantially the same terms they had before.

Another significant restructuring wrapping up this year is that of older Eos Partners funds. The transaction, facilitated by Evercore, is being led by HarbourVest Partners. That deal includes an investment of fresh capital for the GP to make new investments.

Also, Intermediate Capital Group led the restructuring of Quadriga Capital’s 2006 third fund, which closed on 525 million euros in 2006. About 70 percent of the LP base chose to sell in that deal. Park Hill Group was intermediary on that process.

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Photo of Alex Slusky sourced from Vector’s website