Much of the secondary private equity community doesn’t want to touch shares in venture funds, let alone venture portfolios. Secondary buyers think buying venture portfolio assets would be a long bad trip featuring overvalued assets that are difficult to price and problematic to manage.
One of the small band of secondary contrarians who see direct private equity and venture assets as a promising market is W Capital Partners. The secondary firm announced last week that its inaugural institutional fund, W Capital Partners LP, closed with $250 million in commitments.
We’ve never done a secondary LP deal and we don’t intend to,” says David Wachter, who manages the firm with fellow general partners Robert Migliorino and Stephen Wertheimer. “We recognized the pipeline of deals early on. We built a set of processes and methodologies that allow us to be efficient and offer sellers high probability of closure. We have a due diligence process that was designed to address direct secondaries.” While the fund is mandated to explore any and all private equity assets, Wachter expects to be much more active in buying venture capital portfolios. “Much more opportunity exists in the venture capital side than the private equity side,” he says.
Institutional limited partners in the fund include the California Public Employees’ Retirement System (CalPERS), Columbia University, the Fire and Police Pension Association of Colorado and the Public Employee Retirement System of Idaho, which are each advised by Hamilton Lane Advisors. Rhode Island Employees’ Retirement System through the Pacific Corporate Group and Goldman Sachs’ VF Holdings also signed up to commit. The fund also has endowments, foundations and high net worth individual investors as well as some European institutional investors.
The New York-based firm had an initial goal of $150 million for the fund. It held a first close in January with $101.2 million and closed on an additional $71 million in late March.
San Francisco-based Probitas Partners served as a placement agent on the fund. Craig Marmer, a partner with Probitas, says the firm’s ability to close deals at a steady pace proved that there is a long-term opportunity for direct portfolio deals. “The biggest issue was understanding the market and having an appreciation that this was not just a quick market aberration but an ongoing market opportunity,” Marmer says. “What makes this a longer term business opportunity is that this is no longer a large scale sale of Internet or telecom companies but people are using this as a portfolio management tool to sell off non-strategic assets.”
W Capital has closed on six private equity portfolios so far. The only one the firm has made public so far has been the March 2003 acquisition of all the direct investments in life sciences, communications and information technology of Tredegar (NYSE: TG). W Capital partnered with Goldman Sachs on the deal, with Goldman buying Tredegar’s private equity fund stakes.