Lehman to float US$500m fund-of-funds

To this end Lehman Brothers will invest US$100m of its own money in LBPE with a three year lockup, thereby aligning its interests with the investors’. The funds raised will be immediately available for investment, and will use a pre-arranged credit facility to support an over-commitment strategy to maintain full investment. The firm will also pay for all listing fees and other expenses. Management fees will be charged on invested capital only; there will be no fees on cash or unfunded commitments.

The fund expects to purchase a portfolio for an aggregate purchase price of approximately US$237.8m, and assume related unfunded commitments aggregating approximately US$365.4m.

Lehman Brothers will join a select few who have listed fund-of-funds in Europe: Pantheon International Participations, Bear Stearns Asset Management, Robeco Private Equity, F&C Investments, AIG Private Equity, Shape Capital, Castle Private Equity, Princess Private Equity Holding and Partners Group Global Opportunities Fund are all examples.

Listed fund-of-funds can have a hard time attracting new investors. The market is discounted to cash, i.e. the NAV of the stock is discounted from day one, so for investors it makes more sense to invest in an existing fund, one with assets already. Hence LBPE attempts to overcome this obstacle by investing straight away.