Lehman joins co-investment fray

Lehman Brothers (NYSE: LEH) has become the latest large private equity player to plant its flag on co-investment turf. The New York-based firm recently closed Lehman Brothers Co-Investment Partners with $1.6 billion, and has already committed about $330 million in 10 transactions.

The firm didn’t disclose limited partners, but a Lehman spokesperson said that the fund attracted a significant number of LPs from previous Lehman funds and it brought in some new LPs. The Los Angeles Fire and Police Pension System committed $10 million to the fund. Plus, Lehman Brothers and Lehman employees contributed $350 million.

The co-investment fund targets minority investments between $5 million and $150 million in deals led by other private equity firms. Portfolio companies range in size from $200 million to multi-billion dollar enterprise values.

The fund has a four-year investment cycle but is currently seeing deal flow that should have it fully invested sooner. Managing Director David Stonberg says that because the firm does not take the lead on investments, the new fund could invest in up to 40 more portfolio companies. The fund has focused primarily on North America and Western Europe but has also reviewed investments in Asia and Latin America.

Among its recent deals, Lehman invested in metal product provider Firth Rixson, buying a 36% share in the company from The Carlyle Group, which will remain the lead shareholder in the company. Assuming Firth Rixson maintained its $1.14 billion valuation, the 36% stake purchased by Lehman would be worth about $400 million.

The Lehman fund has also co-invested in Leonard Green & Partners’ $1.3 billion acquisition of The Sports Authority Inc.; Welsh Carson Anderson & Stowe’s acquisition of Mobile Storage Group; and in First Atlantic Capital’s acquisition of BHM Technologies.

Lehman is not alone in its enthusiasm for co-investment. AIG Global Investment Group (AIGGIG) closed its premier dedicated co-investment fund, AIG Co-Investment Fund, with $700 million in commitments. Also, on the smaller end of the market, New York-based investment bank The Silverfern Group founded Silverfern Co-Investment Partners, to make equity co-investments with private equity firms. The Silverfern co-investment group has so far committed about $100 million to co-investments and plans to invest between $50 million and $100 million in each co-investment transaction. —Matthew Sheahan