As Lehman Brothers prepares to float a fund of funds on Amsterdam’s Euronext exchange, the investment bank has closed its 18th fund of funds on $1.5 billion (€1.1 billion) – more than double the size of its previous such vehicle.
Lehman’s fund of funds team raises capital on a two-year, vintage cycle, so Lehman Crossroads Fund XVIII is comprised of commitments from 2006 and 2007.
“One thing that makes our funds unique is we commit the capital at the same time we’re raising the funds, so the investors get a very good look at the portfolio as it’s building during the fundraising period,” said John Buser, managing director and head of Lehman’s fund of funds group. “The investors really like that aspect.”
Lehman has already invested the fund in more than 50 “leading private equity funds” and will use up to 20 percent of its capital to make co-investments in the secondary market, according to a statement.
The fund, which includes $130 million in investments from Lehman Brothers and its employees, will invest roughly 35 percent of its capital in Europe, between 5 percent and 10 percent in Asia, and the balance in the United States. It will invest across four asset classes: approximately 30 percent of capital is allocated for mid-cap buyouts, 30 percent for large-cap buyouts, 20 percent for venture capital and 20 percent for special situations.
“Individual investors who are institutional in size can actually invest in one of the four tranches; they don’t have to invest in the overall asset allocation,” Buser said. The vast majority, however, choose to follow the fund’s allocation strategy, he said.
The asset class allocations for the fund mark a slight shift in strategy from Lehman’s previous fund, which closed on $644 million and had earmarked less than 10 percent of its capital for special situations.
“It’s a nice risk mitigator in our overall portfolio,” Buser said of the asset class.
Lehman Crossroads Fund XVIII brings to $19 billion the firm’s total amount of private equity-related capital under management. It is the second fund that Lehman has raised since purchasing Dallas, Texas-based fund of funds manager The Crossroads Group in 2003.
The investment bank launched its private equity business in 1983, and has steadily bolstered its various divisions.
Currently, the firm is preparing to join the growing number of private equity firms looking to take advantage of the industry’s success by raising permanent capital via public markets. Lehman has previously confirmed it is “considering” the float of a fund of funds on the Euronext exchange, which could reportedly raise up to $500 million (€372 million). Lehman declined to comment on the issue.