VCFA Group, the New York-based firm credited with helping start the secondary market, has broadened its reach into buyouts with VCFA Private Equity Partners IV, which closed recently with $250 million.
At least 90% of the fund’s capital will be used to purchase limited partnership shares in leveraged buyout funds while 10% will be used to purchase LP shares in venture funds.
Although the firm expects to raise another venture-focused fund later this year, fund IV is a departure for the firm. VCFA, which stands for Venture Capital Funds of America, has been focused on purchasing venture assets. The last VCFA fund, VCFA Venture Partners III, closed in 2000 with $100 million and at least 75% of its capital was dedicated to venture interests (25% was made available for LBO secondaries).
“We felt we could do LBO secondaries as well as venture,” says Dayton Carr, founding managing director of VCFA Group. To help the firm’s greater focus on LBO funds, VCFA has added Edward Hortick as a partner. Hortick is a former Bank of America Capital president and managing director who oversaw investments into middle-market buyout and other private equity funds.
Founded in 1982, VCFA had increased its focus on buyout assets in 2001 out of concern that many of the venture funds on the secondary market were overvalued and saddled with potentially bad portfolios. By and large, it prefers smaller deals and generally avoids auctions.
“We’re trying to find smaller, non-competitive deals,” says Carr. “There’s no point in getting involved in an auction, because the winner of an auction can be the loser.”
So far VCFA Private Equity Partners IV has called down 13% of its capital for its new fund and done nine deals. All of the deals were for interests in leveraged buyout funds. Carr says that VCFA Private Equity Partners IV will take about four years to invest.
Limited partners in the fund IV include previous VCFA backers American Family Insurance, Liberty Mutual and the University of Richmond. New LPs include the New York State Common Retirement Fund and the New York State Teachers’ Retirement System and the UK-based East Riding Retirement System.
The firm has added some smaller university endowments that invested between $3 million and $5 million apiece. VCFA also gained two additional foundations to its LP roster.
The firm has four partners working from its offices in New York, Chicago and San Francisco. The firm is looking add one additional partner to its staff. VCFA is affiliated with the London and Paris-based ARCIS Group.
Secondary firms large and small are buying more diverse assets than before. Credit Suisse First Boston specifically allocated $210 million in funding for venture buys in its latest $2.4 billion fund. Willowridge, which recently closed its fourth secondary fund, also widened its purchases of secondary assets to include more of a balance between venture and buyout assets.