Live Oak Hunts Secondaries with First Fund –

In the heart of Texas, a lone hunter searches for game. No, it’s not a well-armed man in a deer blind hungry for venison; it’s a new entrant to the popular secondary private equity marketplace. Harbert Mulherin is on the prowl for small to mid-size private equity secondary deals as the managing partner of Live Oak Capital.

Dallas-based Live Oak raised its inaugural fund, the $100 million Live Oak Secondary Opportunity Fund, entirely from the firms four partners: Chicago and New York-based asset management firm Guggenheim Partners, Dallas-based holding company Sammons Enterprises, Dallas-based merchant bank Sponsor Investments and Mulherin himself, who is the firm’s lone investment professional so far. The firm uses strategic advisors and placement agents to help find deals.

Mulherin describes the firm’s fund as a “hybrid between a partnership and a fund” in that all its limited partners are also founding general partners in the firm. So far Live Oak has closed several deals under $10 million each for shares of mid-market buyout funds. At its current rate of investment, Live Oak could be back in the market for a new fund by the end of the year, and ready to take money from outside limited partners.

Live Oak’s investment strategy favors buyout assets over venture. Approximately 75% of the firm’s deals will be for buyout assets and between 20% and 25% will be for venture assets. “I’m going to be heavily weighted to buyouts, and smaller pieces of the large funds are high on my buy list,” says Mulherin. “Between $150 million and $300 million buyout funds are really my sweet spot.” He adds that it is more difficult to determine good values in venture portfolios. “A lot of the venture deals we’re seeing are heavily discounted hangover deals from the venture boom. It takes more than analysis to determine if they are more than just the walking wounded. When they hit a downturn and stay down for awhile, it’s not always a sure thing that they’re going to have a lot of value.” He adds that he would prefer to buy shares in older and more established venture firms, but that these don’t come to the secondary market as frequently.

Mulherin was a vice president of business development for Electronic Data Systems (EDS), and in 1999 sold about $500 million in private equity holdings to the Crossroads Group. “At that time it was one of the larger secondary deals,” he says. “Now a $480 million transaction gets a second look but not much of one. It’s amazing how the market has expanded.”