Numerous sources from the finance sector, including Financial News and Reuters, have reported that Ardian Investment – previously AXA Private Equity – have raised in the region of $10billion for investment into private equity secondaries.
This new fund is being set up in order to buy interests in global buyout funds. It is unknown at this stage whether Ardian are planning to position themselves with controlling shares in particular funds and initiatives, or whether they are simply planning to invest the money with a private equity (PE) partner who then goes out and finds the biggest buyout opportunities.
This $10billion fund is the largest secondary fund of all time, although it may be trumped in the coming months owing to a fundraiser that Lexington Partners are currently undertaking. From Ardian’s perspective, this fund represents their second headline success from fundraising in recent years, following 2012’s fund of funds that brought in $8billion.
While these huge numbers make Ardian look great and will undoubtedly grab the attention of people across the finance sector, several commentators have questioned whether raising such a fund at this time was necessary, or a good idea. It is no secret that PE houses around the world are sitting on record levels, more than $1trillion, of dry powder, and with so much money going unspent, questions around such a fund were inevitable.
Dan Primack, a senior editor at Fortune, has been one of the main industry analysts to ask questions of this approach. Writing here, he states, “Maybe I’m just a worrywart, but this seems to be a strange time to be ramping up such deals.
Private equity firms are legally required to include public equity valuations when marking their private portfolios, which means that current holding valuations reflect the 5-year bull market run. That’s fine for the actual fund managers, because interim valuations don’t really have much impact (except when raising their own funds). For secondary players, however, those valuations serve as pricing guidance (for both discounted and premium bids). Isn’t this exactly when firms like Ardian should be backing off a bit?”
Later, Primack goes on to question why Ardian – or anyone, for that matter, would need to raise such a fund a short time after raising $8billion. Primack noted that he had interacted with Benoit Verbrugghe of Ardian, who had unsurprisingly stated that this move was a positive one for Ardian.
Verbrugghe’s thinking is that the current development and position of the secondaries market means that only a select few firms are going to have the clout to go after larger secondary deals, where the value could reach as high as $2billion.
Clearly, such deals are well within reach for Ardian given what they have raised, although the current levels of uncertainty surrounding secondaries and the fact the market in 2013 was “only” valued at around $26billion in total, it is unclear whether Ardian and its investors are likely to find many profitable opportunities in the near future.