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LPs in older Kinderhook fund decide to sell or stick in GP-led secondary

Secondaries activity has been picking up over the summer, with an expectation that volume will pick up in force after Labor Day.

Kinderhook Industries is running a process to move remaining assets out of an older fund and into a continuation vehicle, giving the GP more time to manage out the investments, three sources told Buyouts.

The Kinderhook deal was said to be in the works prior to the pandemic, but as it moves toward its final close, it’s another of a handful of transactions that have made their way through the downturn. Activity has been picking up over the summer, with an expectation that secondaries volume will pick up in force after Labor Day.

Kinderhook’s GP-led secondary involves its third fund, which closed on $300 million in 2010. It’s not clear how many assets are left in the fund, but the total deal value is said to be around $300 million, according to two of the sources.

The deal would move the assets out of Fund III into a continuation vehicle with a fixed term, usually around three to five years. The term on the Kinderhook fund is not clear.

Existing LPs would have the option to sell out of their interests in Fund III or roll their stakes into the continuation fund. The deal is now with LPs in what’s known as the election period, meaning LPs are choosing whether to sell or stick with the GP, sources said.

Evercore is working as secondaries adviser on the transaction. Fund III was generating a 15.60 percent net return since inception and a 1.81x multiple as of June 30, 2019, according to performance information from the Los Angeles County Employees’ Retirement System.

The deal was said to have been in the works prior to the pandemic, so it’s possible economics have changed. Such financial details were not clear, though two sources said the deal involves a deferred payment structure.

Robert Michalik, managing director at Kinderhook, declined to comment.

Kinderhook announced the final close of its most recent pool, Fund VI, on $1.1 billion in January. The fund closed on its $1 billion hard cap, with $110 million from the GP, operating partners and affiliates.

First half secondaries volume slowed significantly from the same time last year, tallying around an estimated $18 billion, according to Evercore and Greenhill Cogent. Adviser Setter Capital pegged the total at about $20.2 billion.

GP-led deals like fund restructurings accounted for about 39 percent of total deal volume, Evercore said in its first-half secondaries volume report.