Kensington sells investment in Bain Fund X

The Toronto-based firm says it has 'lost confidence' in mega-funds and is adjusting its portfolio toward the mid-market segment.

Kensington Capital Partners Limited has sold its stake in Bain Capital Fund X to another limited partner in the fund.

Toronto-based Kensington invested in Bain’s $10.7 billion Fund X in 2007, making the commitment from its Kensington Global Private Equity Fund, a closed-end fund of funds that is listed on the Toronto Stock Exchange. The secondary sale comes as Kensington adjusts its portfolio to exit mega-funds and refocus on the mid-market segment. 

“We have increasingly focused our private equity portfolio on the mid-market and we have lost confidence in the mega-fund segment,” Kensington managing director Rick Nathan told Private Equity International. “Even though the Bain folks do a lot of smaller deals – what would be considered upper mid-market – it’s a $10 billion fund [and] is still subject to a lot of those challenges that you find in that mega segment.” 

We have increasingly focused our private equity portfolio on the mid-market and we have lost confidence in the mega-fund segment

Rick Nathan

The secondary sale, completed in late December, represents Kensington’s only secondary transaction of 2012. The firm typically sells one or two fund positions on the secondary market per year, Nathan said.

Kensington’s investment in Thomas H Lee Partners’ $10.1 billion Fund VI represents its only other exposure to the mega-fund segment, though Nathan said Kensington did not have plans to exit that fund. Kensington’s shift away from mega-funds is part of a wider trend of limited partners moving away from commitments to large-cap funds in favour of mid-market managers in recent years.

In addition to Kensington’s fund of funds strategy, the firm also makes direct co-investments with fund managers to whom it makes primary commitments as well as other groups. Roughly 60 percent of the firm’s portfolio is comprised of fund investments, with the remainder in direct deals.

Kensington will likely make three fund investments during the first half of 2013, Nathan said, two to existing managers and one to a general partner the firm has not previously invested with.

“On the direct side we’re seeing lots of high quality deal flow, so I suspect that we would probably do a couple of [direct deals] too,” Nathan said.

In 2012, Kensington completed six investments, split between three primary fund commitments and three direct co-investments.

Founded in 1996, Kensington has committed more than $550 million through its fund of funds and direct co-investment programmes.