Kensington IPO raises $22.7 million

Canadian fund of funds manager Kensington Capital has raised $22.7 million in an IPO for its latest fund of funds, the first of its kind in Canada.

Kensington Capital has raised $22.7 million (€17 million) in an initial public offering of its Kensington Global Private Equity Fund, a closed-ended fund of funds, to be listed on the Toronto Stock Exchange.

“The new fund is our first attempt to bring our product to the retail market and to allow public market investors the opportunity to participate in our investment program,” said Rick Nathan, a managing director at Kensington. “Until this latest fund, all of our funds have been normal institutional structures – funds of funds with a piece for co-investments.”

In its prospectus, the final version of which was filed with Canadian authorities 11 April, Kensington noted the IPO would raise a maximum of $50 million. The fund will begin trading on the Toronto Stock Exchange once its capital has been invested, which is likely to be within a year. Nathan said Kensington spent a lot of time thinking about whether the fund should be listed right away, but chose to wait to list until is fully committed.

Nathan said this was an attempt to avoid the “cash drag” problem. “That way when it trades, it’ll trade on the basis of a collection of private equity investments. It was our concern – as well as that of the underwriters – that if we are going to list something that is just essentially a pool of unallocated cash, it’s not going to trade well. Those kinds of closed-end funds often trade at a discount.”

Having investments to which Kensington can point, Nathan said, will allow people to assign both current and prospective value to the fund.

The fund will have overlapping mandates and invest side by side with two of Kensington’s institutional funds, its Canadian-focused $250 million Kensington Fund IV and its $150 million International Fund I, which targets the US and Europe.

“So even though the public fund as a whole is not large by fund of fund standards,” Nathan said, “we’ll have no trouble putting together a diversified portfolio because it kind of piggy backs on the institutional funds we manage.”

The Kensington Global Private Equity Fund will spread its investments equally between Canada, the US and Europe. Approximately 10 percent to 20 percent of its capital will be allocated to direct investments in companies, with the balance going to primary and secondary private equity funds and funds of funds.

“What’s important to note on that score is we’re not adding on an additional layer of funds of funds fees for our investors,” Nathan said. When the firm invests in another fund of funds, he said “we pay those fees out of our management fees”.

Technically structured as a mutual fund trust, Kensington Global Private Equity Fund’s units were made available to investors – save for those in the US – at $20 per unit, payable in two equal installments. The first was due on the offering’s close date of 20 April, and the second is due on or before 5 December. The minimum investment was $25,000.

Founded in 1996, Toronto-based Kensington has more than $300 million in commitments through its fund of funds and direct co-investment programs.