Lehman Lines Up Deals In Advance On Euro FoF Vehicle

Lehman Brothers Holdings is attempting to learn from the mistakes of others as it considers joining the list of American firms raising private equity funds on the Euronext stock exchange in Amsterdam.

Late last month, Lehman Brothers said that it intends to launch a public offering to raise a $500 million fund of funds later this year. The move comes after two U.S.-based buyout shops achieved only lackluster performance with funds raised on the Amsterdam exchange. Kohlberg Kravis Roberts & Co.’s KKR Private Equity Investors and Apollo Management’s AP Alternative Assets have struggled in part because their funds did not have investments immediately teed up. Until opportunities come along, the cash raised through the public offering sits idle. Those funds invest alongside KKR’s and Apollo’s other deals. By contrast, a source close to Lehman Brothers said the firm has lined up commitments for all of the IPO proceeds ahead of time.

The publicly listed vehicle is earmarked both for private equity funds, as well as for direct investments, according to a person familiar with the situation. The exact split between fund commitments and direct investments and hasn’t been determined, nor has the geographic mix, said the person. Lehman Brothers representatives declined comment.

New York-based Lehman Brothers, which will make a sizeable, though unspecified, investment in the publicly traded vehicle, is already a big presence in the funds-of-funds world. It closed on a $1.5 billion fund of funds, Lehman Brothers Cross Roads Fund XVIII, earlier this year. Lehman Brothers acquired Dallas-based Crossroads Group in 2003.

Publicly traded funds of funds are common Europe. AIG Private Equity, Castle Private Equity, Pantheon International Participations, Partners Group Global Opportunities and Princess Private Equity Holding are among those already trading on European stock exchanges. Bank of America and Bear Stearns also plan to match Lehman Brothers with their own similar public offerings, according to published reports.

Lehman Brothers has experience raising such alternative vehicles on the underwriting side. It recently was the joint book runner for CMA Global Hedge, a hedge fund of funds that trades on the London Stock Exchange. It also was the book runner for the alternative investment vehicle, Boussard and Gavaudan, which trades on Euronext.—M.C.