Fund: Hamilton Lane Secondary Fund III LP
Target: $650 million
Amount Raised: $900 million
Hamilton Lane raised nearly twice as much for its new secondary fund as it did for its predecessor from four years ago, partly because of wider acceptance and better liquidity in the marketplace for ownership interests in funds, an executive at the firm said.
Hamilton Lane Secondary Fund III LP raised $900 million at its official closing this week, surpassing its target by $250 million and beating by more than $300 million the $590.7 million raised for 2009’s Hamilton Lane Secondary Fund II.
The larger size will give Hamilton Lane leeway to pursue “slightly” larger deals and it may reach out more internationally, said Tom Kerr, a managing director at Hamilton Lane who runs the secondary business. But for the most part, the firm plans to stick to its strategy of avoiding auctions, negotiating its own purchases and focusing on the highest-quality assets, he said.
While secondary sales have enjoyed a less-than-sparkling reputation in the past, all types of limited partners—from sovereign wealth funds to pension funds and family endowments—participate nowadays.
“Categorically, anyone in this asset class for a while has something they want to sell,” Kerr told Buyouts. “That has evolved over the last four or five years from when the market had a negative stigma. Today it’s a widely understood activity. It’s hard to grow as an asset class when you don’t have liquidity. That’s a shift we’ve seen, and we continue to see that trend developing.”
Hamilton Lane’s funds have appealed to investors partly because the firm is selective with secondary funds, with a roughly 2 percent rate of investment among all the opportunities it sees.
The Bala Cynwyd, Penn.-based asset manager also oversees up to $7 billion a year in fresh capital to primary private equity funds on behalf of its client base of retirement funds and other institutional investors. That gives it an advantage in secondary deals, the firm said.
“With secondaries, higher quality GPs have a tendency to be selective around who can ultimately buy a secondary,” Kerr said. “At the end of the day, a GP has to OK the transfer of a secondary. We have an advantage there because of the capital we bring to the table.”
And some of the performance metrics have been strong. Hamilton Lane’s 2009 Secondary Fund II generated an IRR of 20.5 percent as of Dec. 31, according to data from the Public Employees Retirement System of Idaho. Hamilton Lane’s 2005 Secondary Fund LP generated an IRR of 6.4 percent as of the same date. The retirement system also said it earned a 60.4 percent IRR on its $20 million commitment to Hamilton Lane Secondary Fund III after its $1.54 million investment grew to a reported market value of $2.47 million as of Dec. 31.
At the time of closing, Hamilton Lane Secondary Fund III LP had already committed nearly $200 million through eight transactions, “diversified across vintage year, strategy and maturity,” the firm said.
“The strong demand for the fund demonstrates continued interest in the secondaries market by institutional investors,” Mario Giannini, chief executive officer of Hamilton Lane, said in a prepared statement.
Hamilton Lane was founded in 1991 and now manages or supervises $160 billion in total assets.