Lehman fund of funds defies IPO jitters

Lehman Brothers’ private equity arm has hit its $500m fundraising target for a listed fund of funds despite planned flotations of other alternative asset vehicles being knocked off course.

Lehman Brothers Private Equity Partners said today it had achieved its target of raising $500 million (€363 million) from the listing of a closed-end private equity fund of funds on Euronext Amsterdam.

LBPE placed 50 million shares at $10 a share and granted parent company Lehman Brothers International, the sole global co-ordinator of the IPO, an over-allotment option of up to $50 million (5 million shares). Conditional dealings commence today and unconditional dealings in a week’s time.

The success of the fundraising comes as other alternative asset managers have been forced to cancel or scale down their public offerings.

News also emerged today that Third Point, a US hedge fund, had postponed a planned IPO on the London Stock Exchange that was intended to raise €500 million. Global market volatility sparked by concerns over the US sub-prime market was cited in reports as a contributory factor.

Earlier this month, Carlyle Group finally completed the float of a specialist debt fund following an earlier postponement and scaling down of the target from $415 million to $300 million; while Bramdean Alternatives, a new alternative asset fund spearheaded by Nicola Horlick, raised just £131 million of a £250 million target. In May, Market Wizards, a hedge fund of funds, pulled an IPO targeting £200 million.

In an attempt to ensure a successful offering, LBPE committed to invest all proceeds from the listing into a partially funded portfolio of direct and indirect private equity investments, diversified across geographies and vintage years. LBPE said today the purchase price of this portfolio would be $260.5 million with related unfunded commitments worth $354.1 million.

The immediate deployment of investor capital is designed to reduce or eliminate the so-called cash drag on the listed structure and thus avoid pressure on the share price in the secondary market.

There are also other investor-friendly features. Lehman Brothers have assumed all costs of the IPO and committed to subscribe to $145 million of LBPE shares in the IPO, subject to a three-year lock-up, while management fees will be charged on invested capital only.