If you need further proof that private equity is a complex, global market, look no further than the IPO of Conversus Capital.
The creation of Conversus saw a corporation based in Charlotte, North Carolina sell off a portfolio of private equity fund interests to a limited partnership based in Guernsey that in turn sold units on the Amsterdam Euronext exchange. The Guernsey partnership also sold units to two US non-profit institutions and will be managed jointly by teams based in Chicago and in the California towns of Roseville and Menlo Park.
Those public investors who bought into Conversus got a stake in a “portfolio of seasoned private equity fund interests” that will reinvest distributions in new funds and direct deals. The IPO marked the birth of yet another pool of permanent capital targeting the private equity market.
The underlying fund interests of Conversus are the former property of Bank of America division Bank of America Capital. Like many other financial institutions, Bank of America was eager to lighten the private equity load from its balance sheet. The bank sold this particular multi-vintage-year portfolio to Conversus for approximately $1.925 billion (€1.4 billion).
The Euronext offering, which raised $400 million, was only part of the picture. Roughly $225 million of Conversus' Guernsey units were placed with Bank of America Capital and Oak Hill Investment Management, the two groups that jointly will manage Conversus. A whopping $750 million went to two major limited partners – the California Public Employees Retirement System and Harvard Management Company. The remaining $400 million was sold to “certain directed investors”, according to a statement from Conversus.
Additional borrowings to transfer the fund interests from Bank of America to Conversus came from debt as a result of a collateralized fund obligation (CFO) programme, according to the release. Such a structured product approach has been used previously to package institutional portfolios of fund interests for sale. Essentially, these CFOs rely on technology developed to structure bonds and other debt instruments.
The earlier part of this decade saw a wave of private equity funds being used as collateral for fund obligation structures. In 2001, the Prime Edge deal became the first time securitised private equity funds were rated by a rating agency. In 2002, AON securitised approximately $450 million worth of private equity fund interests. The next year AIG created a roughly $1 billion collateralised fund and sold $250 million of the senior tranches to outside investors.
FRIENDS OF CONVER:SUSUnderlying fund interests in the offering
|Buyout funds greater than $5 billion||Apollo Investment Fund VI||Third Cinven Fund US (No. 3) Limited|
|Blackstone Capital Partners IV||Partnership|
|Reported NAV: $234,561,234||KKR 1996 Fund KKR 2006 Fund||Warburg Pincus Private Equity VIII|
|Total investment: $352,699,302||KKR Millennium Fund|
|Buyout funds $1 – $5 billion||Carlyle Partners II||Nautic Partners V|
|Carlyle Partners III||Second Cinven Fund US No 2 Limited|
|Clayton, Dubilier & Rice Fund VI Limited||Partnership|
|Reported NAV: $839,916,580||Partnership||Spectrum Equity Investors IV|
|Total Investment: $1,126,217,512||Clayton, Dubilier & Rice Fund VII||Thomas H. Lee Equity Fund V|
|Clayton, Dubilier & Rice Fund VII Co-investment||Thomas H. Lee Equity Fund VI|
|Alchemy Plan (BOA) Apollo Investment Fund III||Code Hennessy & Simmons IV||TPG Partners II|
|CVC European Equity Partners II||TPG Partners III|
|Apollo Investment Fund IV||CVC European Equity Partners III||Trident II|
|Apollo Investment Fund V||Diamond Castle Partners IV||Trident III|
|Bain Capital Fund VIIBC European Capital VIIBlackstone Capital Partners III Merchant||EQT III US No. 2||Vestar Capital Partners IV|
|Green Equity Investors III||Warburg, Pincus Equity Partners|
|Green Equity Investors IV||Warburg, Pincus International Partners|
|Banking FundBlackstone Communications Partners 1||Green Equity Investors V||WCAS Capital Partners III|
|Hicks, Muse, Tate & Furst Equity Fund V||Welsh, Carson, Anderson & Stowe IX|
|Blackstone Domestic Capital Partners II||Kelso Investment Associates VI||Seven funds for which receipt of consent is in|
|Carlyle Europe Partners||Morgan Stanley Capital Partners III||process and/or rights of first refusal apply|
|Morgan Stanley Dean Witter Capital Partners IV|
|Buyout funds $500 million –||Blum Strategic Partners||Metalmark Capital Partners|
|$1 billion||Boston Ventures Limited Partnership V||Parthenon Investors II|
|Boston Ventures Limited Partnership VI||Quad-C Partners VI|
|Brentwood Associates Private Equity III||Ripplewood Partners II|
|Reported NAV: $353,584,277||Calera Capital Partners III||TA Subordinated Debt Fund|
|Total investment: $455,549,717||CCG Investment Fund (Golden Gate)||Trident IV|
|Charlesbank Equity Find V||Vestar Capital Partners III|
|Crestview Partners (Cayman)||Warburg Pincus Ventures International|
|Aurora Equity Partners II||Fenway Partners Capital Fund II||Five funds for which receipt of consent is in|
|Bain Capital VII Coinvestment Fund||Kelso Partners V||process and/or rights of first refusal apply|
|Bear Stearns Merchant Banking Partners II||M/C Venture Partners V|