The zombie funds bedeviling investors in private equity funds may have met their match with the launch of a new firm called NewGlobe Capital.
Backed by private equity asset manager Hamilton Lane and multistrategy private equity firm Vanterra Capital,
NewGlobe expects to spend more than $1 billion over the next two to
three years to buy out what it calls ‘end-of-life’ and ‘disrupted cycle’
private equity funds, according to Andrew Hawkins, the chief executive
and founder of NewGlobe.
Hamilton Lane will provide capital, while Vanterra will provide
financial, strategic and operational support and co-invest alongside the
multi-billion-dollar asset manager.
According to a May 2012 article in The Wall Street Journal of
the 10,000 private equity funds raised over the past decade, at least
200 now qualify as zombie funds, vehicles that aren’t making new
investments but still tie up investors’ money and charge them fees. Such
funds hold as much as $100 billion of the $1.5 trillion invested in
private equity overall, citing consultants TorreyCove Capital Partners.
NewGlobe, defines “end of life” funds as the funds that have reached
the end of their 10-year life cycles, and two-year extensions, with a
substantial portfolio of assets remaining unsold. ‘Disrupted cycle’
funds are those that have had trouble raising additional capital and are
looking to recapitalize and give money back to their investors.
For investors in private equity, these funds are just zombies–a
horror story of the financial services industry from which many feel
there is no escape.
In late 2011 a poll of
107 global limited partners conducted by secondary investment firm
Coller Capital showed that only 6% of investors thought they could find a
way out of these living dead funds in their portfolio.
“You’ve got all these groups that are stuck and they’re not going to
raise another fund,” said Mr. Hawkins. “Once they know that, or suspect
it, the game changes.”
“When I first started looking at this industry and these end-of-life
funds, the amount of assets left was tiny,” Mr. Hawkins said. “Roll the
clocks forward to before Lehman and before the world changed and there
was a massive orgy of buyouts that were invested in 2006 and 2007. Many
of the funds that invested are not going to make those assets back.”
From offices in London and New York NewGlobe is getting those
investors in private equity funds out by offering them a cash buyout or
an opportunity to roll that cash into a new investment vehicle,
according to Mr. Hawkins.
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