This approach has worked for Pirzio-Biroli, global head of DB Private Equity and co-head of DB PE Secondary Funds, in the recent close of Deutsche Asset & Wealth Management unit’s Secondary Opportunities Fund III LP at its hard cap of $1.7 billion. The firm raised far more than the $614 million it raised for the predecessor Secondary Opportunities Fund II, which wrapped up in 2012.
Fund III attracted 30 major LPs and more than 300 private investors altogether including family offices. That was up from 20 investors in Fund I and slightly more in Fund II. Strong performance numbers for the firm’s past funds and the growing popularity of secondaries as an asset class also stoked LP interest, he said.
“Our investment approach is not changing,” he said. “In order to pursue our value strategy of selecting smaller and sometimes more sizable transactions, we need to be able to play in the $1 million to $500 million transaction range. You need to have a fund large enough to be credible at the upper end but small enough to capture the smaller end of the market.”
The larger fund size of Fund III also reflected growth in the overall secondaries market, he said.
“The market is bigger, with more sellers and more types of transactions,” he said. “You need to play on a global basis. You need a fund of at least $1 billion.”
Pirzio-Biroli also urged secondary investors and LPs in secondary funds to avoid the temptation to rely too heavily on fresh macroeconomic indicators for investment moves.
“Our view is that private equity and the secondary market are not a macroeconomic play,” he said. “Timing the market is very difficult. Most people don’t know how to do it. Instead, stay consistent, stay disciplined and invest across various cycles by cherry-picking assets.”
The DB secondary unit kept up its activities before and after the 2008 financial crisis. “We invested throughout the phase,” he said. “All of our investments have delivered returns within a narrow range of the underwriting target.”