Lexington Partners Extends Fundraising Period, May Aim for Largest Ever Secondaries Fund

Private equity secondaries giant Lexington Partners has gained an extension on the fundraising period for its seventh fund. The firm received approval from LPs to continue fundraising beyond its target.

Lexington had planned to hold a final close on the fund, which has a $5 billion target, by the end of Q1. But with just over $4.1 billion in commitments, Lexington asked investors for an extension.

Private Equity Insider first reported the extension news, adding that Lexington has gathered another $1 billion in commitments from separate accounts, including $500 million from China Investment.

That puts Lexington over its $5 billion target, but apparently the firm wants to continue fundraising, possibly reaching the $6 billion mark. Lexington has been in the market since early 2008, including that brief period when secondary funds were the hottest things around. Park Hill is the firm’s placement agent.

Which leads to my confusion over the firm’s motives. Perhaps it’s more straightforward than this, but it seems quite ambitious, or even odd, that the Lexington would want to keep trucking. When you consider the spike and subsequent drop in investor interest for the secondary market that occurred early last year, coupled with Lexington Partners’ two years in the market, you’d think the firm would have, by now, tapped every potential market out there. The drop in interest for secondaries happened when it became apparent that the explosive deal flow predicted by market observers simply wasn’t happening.

So basically the roller coaster ride is over and secondaries have returned to their position of an important but not prominent part of the private equity world. In early in 2009, Goldman Sachs and Harbourvest Partners closed large dedicated secondary funds, raising $5.25 billion and $2.9 billion, respectively. Other large players have remained in the market for a longer period of time. Landmark Partners, for example, last week closed its 14th fund at $1.93 billion (target was $2 billion) after around a year in the market. Other secondary funds in the market include Pantheon International, which is seeking $4.75 billion. As of December of last year, Pantheon had closed on $950 million.

The only explanation for Lexington’s continued fundraising is a recent recent increase in deal flow, which may renew interest for the entire sector. Perhaps investors who were scared by the lack of cheap deals are trickling back into the market, particularly as the large banks consider sales of their private equity holdings. Recently Bank of America sold $1.9 billion worth of private equity stakes to AXA Private Equity, for example.

If Lexington hits the $6 billion mark, it’ll be the largest ever private equity secondaries fund, topping Goldman Sachs’ vehicle (which, incidentally, was underwater when it closed).

The firm’s prior fund, Lexington Capital Partners VI closed in 2005-2007 with $3.8 billion in commitments.

Lexington Partners acquires interests in buyout, mezzanine and venture capital funds as well as portfolios of direct minority interests. The firm’s investment size ranges from single-interest deals to billion dollar portfolio acquisitions. Founded in 1994 the firm also manages co-investment funds.

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