Lehman Brothers, the US investment bank that manages $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.
In a press release, the bank confirmed that Lehman Brothers Private Equity was “considering” floating a private equity fund of funds on the Euronext stock exchange in Amsterdam. If the deal goes ahead, the bank intends to raise up to $500 million (€372 million), according to unconfirmed press reports.
To ensure a successful offering, Lehman will commit 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. 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. Another recently launched permanent capital entity, the €5 billion structure listed by Kohlberg Kravis Roberts in Amsterdam last year, achieved notoriety when it ended up holding the proceeds in cash for a lengthy period of time and seeing its share price tumble as a result.
Other investor-friendly features built into the Lehman Brothers deal will include a “substantial” investment in the listed vehicle from the bank’s balance sheet. The bank also said that it would bear the costs of the offering.
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.
By far the largest private equity IPO to date was KKR’s €5 billion Euronext sweep.