• Home
  • News
  • Analysis
  •  
    Regions
    • Australasia
    • Southeast Asia
    • Greater China
    • North Asia
    • South Asia
    • North America
    • Europe
    • Central Asia
    • MENA
  •  
    Funds
    • LPs
    • Buyout
    • Growth
    • Venture
    • Renminbi
    • Secondary
    • Credit/Special Situations
    • Infrastructure
    • Real Estate
  •  
    Investments
    • Buyout
    • Growth
    • Early stage
    • PIPE
    • Credit
  •  
    Exits
    • IPO
    • Open market
    • Trade sale
    • Buyback
  •  
    Sectors
    • Consumer
    • Financials
    • Healthcare
    • Industrials
    • Infrastructure
    • Media
    • Technology
    • Real Estate
  • Events
  • Chinese edition
  • Data & Research
  • Weekly Digest
  • Newsletters
  • Sign in
  • Events
  • Sign in
    • You are currently accessing unquote.com via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0)870 240 8859

      Email: customerservices@incisivemedia.com

      • Sign in
     
      • Saved articles
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • RSS
    • Twitter
    • LinkedIn
    • Newsletters
  • Free Trial
  • Subscribe
  • Weekly Digest
  • Chinese edition
  • Data & Research
    • Latest Data & Research
      2023-china-216x305
      Regional Reports

      The reports review the year's local private equity and venture capital activity and are filled with up-to-date data and intelligence on fundraising, investments, exits and M&A. The regional reports also feature information on key companies.

      Read more
      2016-pevc-cover
      Industry Review

      Asian Private Equity and Venture Capital Review provides an independent overview of the private equity, venture capital and M&A activities in the Asia region. It delivers insights on investments made, capital raised, sector specific figures and more.

      Read more
      AVCJ Database

      AVCJ Database is the ultimate link between Asian dealmakers and those who provide advisory, financial, legal and technological services to the private equity, venture capital and M&A industries. It is packed with facts and figures on more than 153,000 companies and almost 117,000 transactions.

      Read more
AVCJ
AVCJ
  • Home
  • News
  • Analysis
  • Regions
  • Funds
  • Investments
  • Exits
  • Sectors
  • You are currently accessing unquote.com via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0)870 240 8859

    Email: customerservices@incisivemedia.com

    • Sign in
 
    • Saved articles
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
AVCJ
  • Fundraising

Fund focus: Lexington targets growing Asia secondaries market

baton-secondaries-secondary
  • Tim Burroughs
  • 23 January 2020
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Save this article  
  • Send to  

Having closed its ninth fund at $14 billion, Lexington Partners is hunting for assets in a secondary market that is becoming ever larger and diverse. Asia is on the agenda, whether it’s GP-led restructurings or LP portfolios

Lexington Partners has made its presence felt in Asia over the past couple of years by taking the lead in the region’s two-largest GP-led secondary transactions. Deals of this nature – often involving brand-name private equity firms – have emerged as a significant growth driver of secondaries globally. According to Greenhill, GP-led volume hit $24 billion in 2018, up from $14 billion the previous year. It reached $14 billion in the first six months of 2019 alone.

Nevertheless, Wilson Warren, president of Lexington Partners, is wary of becoming too bullish on the trend. The specialist secondaries investor has dry powder aplenty, having recently closed its ninth flagship fund at $14 billion, but it is unclear how prominently GP-led deals will feature. “It’s a bit episodic. The percentages can be different every year because these transactions are lumpy,” Warren says. “There is an interest in that percentage increasing but it’s dependent on a lot of factors. One of the factors is can buyers offer a liquidity alternative to holders of these assets that clear the market.”

Presenting an attractive alternative usually means offering a financial incentive. When these deals are used to reshape an LP base or finish off a fundraise – i.e. not when a troubled manager is struggling to get initial traction – they are often priced close to the net asset value (NAV) of the target portfolio. In some instances, they have been priced at a premium. If investors started making discounted bids, LPs might well decide it is in their interests to persevere rather than trade.

“We are receiving more inbound inquiries and that will continue to be the case, but our bar is very high. We have turned down multiple deals,” adds Kirk Beaton, a partner and head of Asia at Lexington. “You must get the right price for sellers to come to market and each deal is different. Even if it’s a high-quality GP, a transaction might not work for Lexington. The Warburg Pincus deal was an interesting one for the market because they are a blue-chip GP and it enabled us to have conversations with other groups that hadn’t really thought about that type of transaction in Asia.”

Accessing Asia

In late 2017, Lexington teamed up with Goldman Sachs to acquire a $1.2 billion strip from Warburg Pincus’ 11th global fund, comprising a minority stake in every Asian investment. Warburg Pincus – which continues to manage the investments – wanted to right-size the portfolio and lock-in some gains. A year earlier, the firm backed Madison India Capital’s purchase of positions in about a dozen companies from Sequoia Capital India. It was not a pro rata strip, so the investors had some choice over the assets involved, and it was tiny compared to the Warburg Pincus deal in terms of size and impact.

Lexington returned in 2018 with a more conventional stapled secondary involving TPG Capital’s fifth and sixth Asian funds. It made a tender offer to LPs and took out various existing positions as well as investing new capital in TPG’s seventh fund for a total commitment of around $1 billion. The pricing was close to the NAV of the blended portfolios and most LPs chose not to tender their stakes.

The point about episodic deal flow is especially pertinent in Asia, which has nothing like the depth or secondaries transaction history of Europe and the US. GP-led transactions worth a combined $4.8 billion were completed in 2018, up from $2.7 billion the previous year, according to Lazard. However, 2019 was more muted. A handful of investments closed, though nothing to match Warburg Pincus or TPG.

Secondary volumes globally rose from $58 billion in 2017 to $74 billion in 2018 (so the record level of GP-led activity still only accounted for one-third of the overall market) and then $42 billion in the first six months of last year. Nine deals of $1 billion or more were struck in the first half, collectively amounting to 37% of the global total. They included what has been described as the largest-ever secondary transaction as Ardian acquired a $5 billion portfolio from Japan’s Norinchukin Bank. Earlier in the year, Lexington picked up LP positions worth $1.4 billion from the same seller.

Meanwhile, Greenhill estimated that secondaries investors had $169 billion at their disposal as of June 2019, comprising $91 billion in dry powder, $44 billion in near-term fundraising, and $34 billion in available leverage.

Lexington’s ninth fund is the joint-largest ever raised in the secondaries space, with commitments coming from more than 450 investors, ranging from sovereign wealth funds to high net worth individuals. The firm beat its $12 billion target and comfortably exceeded the $10.1 billion raised for Fund VIII, which closed in 2015. The fundraise is seen as a reflection of the secondary opportunity set within the $3.4 trillion committed to alternatives in the primary vintage years of 2012-2018.

A diverse market

Lexington has already committed approximately 30% of the corpus across more than 30 transactions sourced from public and corporate pensions, foundations and endowments, banks, and other financial institutions. The firm’s internal estimate is that secondary volume reached a record $85 billion in 2019, up from $68 billion the previous year. It expects continued growth as LPs engage in active portfolio management, some investors seek earlier liquidity, and sponsors pursue GP-led transactions.

At the same time, these private equity positions have become increasingly complex. “There are a lot of holders of co-investment these days, commitments to funds have gotten larger, there are separately managed accounts out there. The secondary market and the sellers have become more diverse over time. And that’s before you even start talking about more organized transactions, what the market is now calling GP-led transactions,” says Warren.

Norinchukin’s activity in 2019 offers a snapshot of what might be achieved in Asia as large institutional investors undertake portfolio rebalancing. Lexington celebrates its 10th anniversary in the region this year and the local team now numbers 10. The firm has spent its time cultivating relationships in the anticipation of future deal flow as well as initiating transactions and bidding for assets. Warren observes that Asian sellers might be quicker to embrace secondary solutions than their Western peers.

“Even though the programs might be younger, some of the main issues from a portfolio standpoint that US and European holders of these assets have realized over a longer period, some of Asian investors have figured out early,” he says. “They have thought about how many managers they want to have and what to do with non-core as their strategy changes and evolves.”

Whether this translates into increased deal flow in the medium term remains to be seen, but Lexington is willing to be patient. The firm looked at $125 billion of assets last year and invests at a pace of $3-4 billion per annum. “A fair percentage of that $125 billion didn’t trade, so maybe it’s not a transaction for today but it’s a relationship and a discussion we’ve begun and come back to,” Warren adds.

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Save this article  
  • Send to  
  • Topics
  • Fundraising
  • Secondaries
  • Asia
  • Lexington Partners

More on Fundraising

airport-travel
Asia’s LP landscape: North to south
  • LPs
  • 08 Nov 2023
direction-money-dollar-choice-arrow
Asia GPs fear LP portfolio concentration - survey
  • Fundraising
  • 07 Nov 2023
australia-dollar-notes-2
Australia's Anchorage closes Fund IV on $327m
  • Australasia
  • 07 Nov 2023
india-map-globe
Kedaara targets up to $1.5b for fourth India fund
  • South Asia
  • 03 Nov 2023

Latest News

world-hands-globe-climate-esg
Asian GPs slow implementation of ESG policies - survey

Asia-based private equity firms are assigning more dedicated resources to environment, social, and governance (ESG) programmes, but policy changes have slowed in the past 12 months, in part due to concerns raised internally and by LPs, according to a...

  • GPs
  • 10 November 2023
housing-house-home-mortgage
Singapore fintech start-up LXA gets $10m seed round

New Enterprise Associates (NEA) has led a USD 10m seed round for Singapore’s LXA, a financial technology start-up launched by a former Asia senior executive at The Blackstone Group.

  • Southeast Asia
  • 10 November 2023
india-rupee-money-nbfc
India's InCred announces $60m round, claims unicorn status

Indian non-bank lender InCred Financial Services said it has received INR 5bn (USD 60m) at a valuation of at least USD 1bn from unnamed investors including “a global private equity fund.”

  • South Asia
  • 10 November 2023
roller-mark-luke-finn
Insight leads $50m round for Australia's Roller

Insight Partners has led a USD 50m round for Australia’s Roller, a venue management software provider specializing in family fun parks.

  • Australasia
  • 10 November 2023
Back to Top
  • About AVCJ
  • Advertise
  • Contacts
  • About ION Analytics
  • Terms of use
  • Privacy policy
  • Group disclaimer
  • RSS
  • Twitter
  • LinkedIn
  • Newsletters

© Merger Market

© Mergermarket Limited, 10 Queen Street Place, London EC4R 1BE - Company registration number 03879547

Digital publisher of the year 2010 & 2013

Digital publisher of the year 2010 & 2013