TruArc Partners, the firm that emerged from mid-market shop Snow Phipps, has been exploring an unusual continuation fund deal that would also include a shot of fresh capital into the firm’s new fund, sources told Buyouts.
The deal would be an amalgam of the kind of GP-led processes that continue to hit the market, despite a slow down and continued uncertainty over pricing. The deal would combine a multi-asset continuation fund along with a stapled transaction, a combination that is not seen very often.
GP-led deals slowed last year as LP portfolio sales took the majority of market share. Still, many GPs are interested in finding ways to deliver proceeds to liquidity-hungry investors in older funds as well as boosting fundraising in the challenging environment.
TruArc would run the process on four assets out of Snow Phipps Fund III, a 2016 vintage pool, a secondaries buyer said. Fund III closed on about $915 million in 2016.
The firm, led by Ogden Phipps, Alan Mantel and John Pless, is working with M2O as secondaries adviser on the deal, the person said. Sources said the process was in its early days and its final composition was still being worked out. The firm was said to be looking for a lead investor, sources said.
No one from TruArc returned comment requests.
The process being explored would move the assets into a continuation pool for more time and capital for the firm to continue growing the assets.
Generally, LPs in the older fund have the option to cash out of their interests in the companies or roll into the continuation fund. It’s not clear which assets are involved in the deal.
TruArc is targeting $1 billion for its first fund under the new banner, which it is calling TruArc Fund IV, according to a Form D fundraising document filed in April 2021. TruArc targets investments in manufacturing and business services, according to the firm’s website. It launched in its current form in 2021, with Snow Phipps co-founder Ian Snow stepping back into an advisory role.
Sources said the pool is facing a tough fundraising process as a new product from a rebranded shop, especially in the more challenging fundraising environment. “It’s been a difficult fundraising, and they’re hoping to energize it,” said another secondaries buyer.
LPs are generally sticking with their deepest relationships and eschewing new funds, products or even bringing new GPs into the portfolio. This is the result of many LP institutions facing overexposure to the asset class because of the denominator effect, as well as slowing distributions amid sluggish exit activity.
Yet, the staple aspect of the deal has caused some buyers pause, as it adds complexity to an already complex process, sources told Buyouts.
“The question is, why are you pursuing this, is it for primary capital or because you believe in the assets,” a third buyer said.
Overall secondaries volume came in at an estimated $106 billion, according to Campbell Lutyens full-year 2022 volume report. GP-led transactions represented about 43 percent of overall volume, coming behind LP portfolio sales, which were the majority of deals last year, the report said.
Correction: An earlier version of this report included a misspelling of TruArc. The report has been updated.