Lehman Brothers’ Euronext-quoted fund of funds has directed investment bank ABN AMRO to repurchase up to 5 percent of outstanding shares to remedy the fund’s liquidity problems.
ABN will buy back Class A ordinary shares of Lehman Brothers Private Equity Partners (LBPE). ABN can cancel those shares outright or hold them in treasury until they can be resold at a price equal to the fund’s net asset value per share. The arrangement expires in January 2009 if LBPE declines to extend it.
The agreement is the latest liquidity-enhancing maneuver executed by a struggling Euronext-listed private equity fund. Just last week, Oak Hill Investment Management- and Bank of America-backed Conversus Capital tapped ABN to issue a continuous quote for Conversus shares—the equivalent of a standing order to purchase available common stock.
In recent months, several Euronext-quote funds have faced a significant drop in trading volume while stock prices continue to be traded well below funds’ net asset value. LBPE, which raised $542 million from investors in a public offering last July, closed trading today at $7.61, a 29 percent discount to its last reported NAV per share, published June 30. Conversus shares closed today at $23.40, a 15 percent discount to NAV.
The persistent share price discounts can also be attributed to investor anxiety over feared write-downs by major buyout funds.
As of June 30, LBPE’s estimated net asset value for all its private equity investments totaled $509 million. Fifty-three percent of the fund’s private equity portfolio is tied up in buyout funds, 22 percent in buyout co-investments, and 17 percent in special situation funds, according to the fund’s most recent monthly report.
Including unfunded commitments, 39 percent of LBPE’s portfolio is invested in vintage 2007 funds or co-investments, and 32 percent in vintage year 2006.