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With $1.5bn Fund VII, Adams Street gets ready for post-covid secondaries market

The firm said its focus on 'targeted transactions' as opposed to buying large LP portfolios will work to its advantage in the current market.

Adams Street Partners is roaring into a well-primed post-covid secondaries market with a $1.5 billion target for its seventh global secondaries fund, according to pension documents.

The strategy for Adams Street Global Secondary Fund 7 will focus on buyout and growth equity funds due to those sub-asset classes having “more predictable outcomes” than others, according to a memo from Minnesota State Board of Investment. The fund will also be open to venture commitments on an opportunistic basis.

The memo also said Adams Street will focus on “targeted transactions” through single manager/GP family purchases, targeted portfolios or GP-led transactions. The firm will look into specific funds and exposures that it finds desirable for its portfolio. Fund interests it targets will be between three and eight years old.

Adams Street sees advantage in recent market volatility, which the Minnesota staff memo said will make it harder for secondaries buyers to use leverage to purchase larger portfolios at high prices. As Adams Street tends to focus on smaller portfolios and single deals, it will be ideally situated to take advantage of this.

Adams Street also will make use of a credit facility of up to 30 percent of aggregate commitments to the fund.

Last year, several larger portfolios were on the market from major LPs like Oregon Public Employees Retirement Fund and Pennsylvania Public School Employees’ Retirement System.

Oregon shopped a $1.5 billion portfolio of older interests through its partnership with Pathway Capital Management, as Buyouts reported. It was not clear if the entire portfolio sold, but a Pathway employee told Oregon’s board there was “strong interest.”

PA Schools chief investment officer Jim Grossman told his board last month that his staff passed on secondaries sales of its older holdings due to sub-optimal pricing, as Buyouts reported.

As of September 30, 2020, Adams Street’s previous secondaries fund, Adams Street Global Secondary Fund 6, had a 30.3 percent net internal rate of return and a 1.3x multiple. Fund 5 had a 5.3 net IRR and a 1.2x multiple.

Staff recommended Minnesota commit up to $300 million in Fund 7. It has committed $100 million each to the previous two funds.

Adams Street Partners did not respond to a request for comment.

Action Item: read the materials for Minnesota’s February 16 Investment Advisory Council meeting here.