GS Planning $1B Secondary Fund

Investment banking giant Goldman Sachs (NYSE: GS) is preparing to raise a secondary fund of more than $1 billion, according to a report published in February. Goldman Sachs declined to comment on the report, but sources familiar with the firm confirmed that they had heard of the plans, which they described as being in very early stages.

The upcoming fund would follow Goldman Sachs’ last secondary fund, Goldman Sachs Vintage II, which closed in 2001 with $1.1 billion, according to Thomson Venture Economics (publisher of PE Week).

The firm also raised GS Vintage II Offshore in 2001 with $385 million. Last year, Goldman Sachs’ secondary team expected to be finished with its current investment program by the end of the year.

The New York-based firm’s secondary group raised its first fund in 1998 and typically purchases buyout interests from large institutional investors. Goldman Sachs’ GS Vintage Funds recently acted as a lead investor in Vision Capital’s acquisition of the entire investment portfolio of CS Structured Credit Fund (see article, below).

Goldman Sachs announced last September that it raised its third mezzanine fund, GS Mezzanine Partners III, with $2.7 billion in available capital. The firm claimed the fund is the largest mezzanine fund ever raised. Past limited partners in Goldman Sachs private equity funds include Chrysler, Sara Lee, Sony, Southern Co. Services, Warner-Lambert and Weyerhaeuser.

The fund, if raised, would add Goldman Sachs to the growing list of large funds that have been recently raised or are under way. Other large secondary players currently on the fund-raising circuit include Pantheon Ventures and Paul Capital Partners, which are seeking to raise funds of $600 million and $800 million, respectively.

Also, last summer, Lexington Partners announced the closing of Lexington Capital Partners V with $2 billion.

Capping a banner year for secondaries, Credit Suisse First Boston closed on two secondary funds for a combined $1.9 billion: CSFB Strategic Partners II, which will seek positions in buyout and mezzanine funds, closed with $1.6 billion and CSFB Strategic Partners II RE, a $300 million co-investment fund focused on secondary real estate investments.

Secondary private equity investors raised more than $4.2 billion for new funds in 2003 and more than $5 billion in 2002, according to Thomson Venture Economics.