Lexington Partners Raises Largest-Ever Secondary Fund

Lexington Partners wrapped up its latest secondary fund at the vehicle’s $7 billion hard cap, making it the largest-ever offering raised to invest in existing stakes in private equity, said people familiar with the situation.

The amount raised for Lexington Capital Partners VII LP makes the pool roughly 84% larger than what the firm’s previous vehicle collected in 2007. The latest fund’s $7 billion amount includes separate accounts, one of which is China Investment Corp., that invest alongside the main fund on a pro-rata basis.

The New York firm began premarketing the fund in late 2009 and officially came to market with the offering in 2010. Most of the capital for the vehicle, or at least $4 billion, was raised last year. By January, the fund had exceeded its $5 billion target, LBO Wire previously reported. In January, investors also granted the firm a fund-raising extension to the end of June.

Limited partners in the latest fund include Houston Firefighters Relief & Retirement fund, New York State Teachers’ Retirement System, New Mexico Educational Retirement Board and Montana Board of Investment.

As with many buyers, Lexington Partners has actively invested its money in the past year as a raft of supply has flooded the market.

The firm bought a private equity fund portfolio valued at roughly 470 million U.K. pounds ($731.7 million at the time) from Lloyds Banking Group PLC, as well as co-led the purchase of $1.1 billion in private equity assets from Citigroup Inc. alongside StepStone Group LLC last year. The firm was also among the buyers of a portfolio of $1.2 billion in commitments to funds managed by Warburg Pincus LLC from Bank of AmericaMerrill Lynch.

Lexington should have no shortage of opportunities to deploy its massive pool of capital as secondary deal volume is expected to hit a record level this year. Last year, secondary deal volume reached nearly $21 billion, according to a prior report by Lexington, and secondary participants expect this year to match or even exceed 2010.

The massive fund-raising effort can attest to the fact that some investors are still finding opportunity in the secondary market despite a run-up in prices from steep discount levels in 2009 to slim discounts or par in 2010 and this year. Overall, fund-raising for secondary funds has struggled this year, declining from the first half of 2010 and significantly from 2009 figures. This may comes as little surprise given that $19.6 billion was raised by secondary funds in 2009.

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