Unlike venture capital funds that ballooned to billion-dollar levels four years ago and have been deflating in size since, dedicated secondary funds continue to get larger. In keeping with this success of secondary buyers, next year Lexington Partners plans to raise up to $2.5 billion for its sixth dedicated secondary fund.
The New York-based firm closed its last secondary fund, Lexington Partners V, in 2003 with $2 billion. The firm expects that fund to be well above 75% invested by the end of 2005. Lexington Partners VI is expected to have a first close by June and have a final close by the end of 2005.
Limited partners in past Lexington funds include the California Public Employees’ Retirement System (CalPERS), General Motors Investment Management Corp., Los Angeles County Employees Retirement Association (LACERA), Pennsylvania State Employees’ Retirement System (SERS) and Western and Southern Life Insurance Co. One potential LP that Lexington may be able to get into the fund before its first close is the New Jersey Department of the Treasury Division of Investment. The Garden State’s Investment Council approved a plan to invest 13% of its $66 billion in assets into alternative investments.
“When we raised Lexington V, people’s backs were against the wall,” said Managing General Partner Brent Nicklas. “We’re in a different environment now.” He points out that while limited partners were cutting back on allocations the last time the firm was raising a fund, today many large institutional investors are increasing their allocations to private equity. There are also new entrants, such as the state of New Jersey.
Lexington Partners buys secondary interests in both buyout and venture funds, with a preference for buyout assets.
The past few years have seen a boom in secondary fund raising. The record for a single fund so far has been Coller Capital, which closed Coller International Partners IV in 2002 with a total of $2.6 billion. Earlier this month, AXA Private Equity announced it closed AXA Secondary Fund III with $1.04 billion (see story 22).
Pantheon Ventures closed on a $900 million secondary fund. Goldman Sachs is raising a secondary fund of more than $1 billion, and Credit Suisse First Boston expects to seek $1.85 billion in three separate secondary funds. 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 (publisher of Buyouts).