– Pomona Capital thinks bigger

The US secondaries specialist Pomona Capital, which is in the process of expanding into the European market, last December held a $97 million (euros 96 million) closing on its second primary fund-of-funds, Pomona Partnership Holdings II (PPH II). The fund is already comfortably over its original $75 million target and is likely to surpass $100 million by a sizeable margin at a further close during the first quarter of this year.

Explaining the rationale for creating a much larger fund than originally envisaged, Pomona CEO Michael Granoff points to the rapidly accelerating dynamics of the US venture capital fund market. “Recently, venture managers have been coming back to the market much more quickly than expected with bigger funds than before,” explains Granoff. “Therefore, in current market conditions, we have the capacity to invest more while keeping to our closely focused strategy.” PPH II has already committed an aggregate of some $50 million to ten funds, Granoff says, not because we tried aggressively to deploy the fund but because people are coming back to the market with quality vehicles’. Its investees are funds managed by Alloy, Audax, CMG @Ventures, Doll Technology, Hellman & Friedman, Infinity Capital, Polaris, Sevin Rosen, Silver Lake and Weiss Peck and Greer.

The previous Pomona primary fund-of-funds deployed some 70 per cent in US venture partnerships, with the balance going to buyout partnerships. Granoff expects the ratio for PP II to be broadly similar. The fund does have the potential to invest in European funds, although these would constitute a handful of positions at the very most’. However, such investments will become an increasingly important part of Pomona’s business over time, in parallel with the increase in the group’s European secondary exposure.

Pomona’s primary fund investments piggyback’ on its secondaries activities: thanks to its portfolio of secondary interests in more than 60 top performing funds, the group has existing investor status’ and thus the ability to participate in successor funds which are often closed to new investors. Clearly, it will take the group some time to establish the same privileged access in the European market, where the pace of venture fund raising is also accelerating dramatically. However, Granoff puts forward another strong argument for restricting Pomona’s European primary activities for the time being – track record. “Pomona is seeking

to deliver optimal performances to investors, and it is still hard to find European venture funds that can match the returns delivered by their US counterparts during the last few years.”