Lehman launches fund of funds IPO

The US investment bank with $18 billion in unlisted investments, is the latest private equity operator looking to take advantage of the private equity boom by creating a permanent capital vehicle.

Lehman Brothers, a US investment bank, has launched the initial public offering for its private equity fund of funds on the day The Blackstone Group brought forward its IPO amid concerns the market was turning.

Lehman Brothers Private Equity Partners is looking to raise $500 million on Euronext in Amsterdam, with conditional dealings expected to start 18 July and unconditional a week later.

The bank’s fund investments group, which has about $6.5 billion in committed assets, will select the portfolio of private equity funds and direct investments in companies.

To ensure a successful offering, Lehman has committed to investing all proceeds from the listing into a partially funded portfolio of direct and indirect private equity investments, diversified across geographies and vintage years.

It will start with a $237.8 million portfolio of assets, and further unfunded commitments totaling around $365.4 million.

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

The €5 billion structure listed by Kohlberg Kravis Roberts in Amsterdam last year achieved notoriety when it held the proceeds in cash for a lengthy period of time and watched its share price tumble as a result.

Other investor-friendly features built into the Lehman Brothers deal include the assumption of all the costs of the IPO and the ability to buy back up to 14.99 percent of its shares.

Lehman Brothers has also committed to buy $100 million of the company’s shares, which it will hold for three years.

Lehman’s foray into permanent capital comes at a time when the window for private equity listings is generally considered open. Alternative asset giant The Blackstone Group is currently working to take itself public in a New York flotation expected to raise at least $4 billion.

Last year US-based Fortress Investment Group and Partners Group, the Switzerland based private equity and hedge fund specialist, became public companies in two highly successful offerings in New York and London, respectively.

Apollo Management, a large buyout and turnaround specialist, raised €1.5 billion from an offering on Euronext.

Lehman has closed a $1.5 billion fund of funds and a $3.3 billion buyout fund this month.