Exclusive: Deutsche closes third secondaries fund on $1.65bn

Deutsche Bank’s private equity group has held a first and final close for its third secondaries fund, DB Secondary Opportunities Fund III, on its $1.65 billion hard-cap, PEI has learnt.

The fund, for which Deutsche Bank began pre-marketing in early 2014, is almost three times the size of its $614 million predecessor, which closed in December 2012 and is now fully deployed. Fund III had an original target of $1 billion, according to Private Equity International’s Research and Analytics division.

The oversubscribed fund attracted 30 institutional investors and more than 300 private client investors, including public and corporate pension plans, sovereign wealth funds, insurance companies, foundations and endowments, and family offices.

A third of the fund’s LPs are from North America, a third from Germany, and the remainder from the rest of the world. A substantial number of LPs are returning investors, Carlo Pirzio-Biroli, Deutsche Bank’s global head of private equity, told PEI.

The fund will be looking to make around 30 transactions, writing cheques for anywhere between $1 million and $500 million, Pirzio-Biroli said. In order to be able to successfully operate across such a broad continuum, it was necessary to raise a larger fund.

“To pursue secondary value investing globally [the fund needs to be] large enough to credibly underwrite sizeable attractive $200-500 million transactions, but small enough to be able to snatch smaller $1 million [to] 25 million opportunities,” Pirzio-Biroli said.

Pirzio-Biroli said the larger fund size did not indicate a change in strategy; rather, it’s a reflection of changes in the market. “[Secondaries have shifted from] a cyclical distressed play toward a robust market where LPs trade for a wide variety of reasons. The market has become taller, wider and deeper. The market has more than doubled since 2007.”

Although pricing is higher, the mid-market is seeing a lot of dealflow, and funds need to be sized between $1 billion and $2 billion to take full advantage of the opportunities on offer, according to Pirzio-Biroli. The fund will be making value investments in any attractive opportunity with an underlying private equity investment, and the team has several deals lined up for the next two months, he added. “We have a very strong pipeline and expect the fund will be materially invested in attractive transactions by year end.”

Earlier this month Blackstone’s secondaries arm Strategic Partners Fund Solutions closed its sixth secondaries fund on its $4.4 billion hard-cap, above its target of $3.5 billion.

At the beginning of this year specialist secondaries advisor Cogent Partners reported a global secondary market volume of $27.5 billion for 2013, up from $25 billion the previous year. The volume level hit $16 billion for the first six months of 2014, putting the market on track for another record year of sales.