Q&A with LGT's Vercoutere

LGT Capital Partners held a final close for secondaries-focused vehicle Crown Global Secondaries III (CGS III) on its $2bn hard-cap this year. So far, the fund has made 18 transactions and committed around 15% of the total raised.

How has the secondary market performed so far in 2013? And how do you think it will develop?

Even though overall secondary market volume declined sharply during the first half of 2013, LGT experienced an increase in the number of opportunities reviewed compared to the same time period last year, as sophisticated investors took advantage of the current pricing environment to proactively rebalance their portfolios. We expect to continue seeing attractive opportunities, even if overall transaction volume for 2013 ends up below that of 2012.

What opportunities are of interest now for European investment compared to the last time LGT raised in 2010?

We continue to review a large number of opportunities from European sellers, especially from financial institutions, which remain under pressure. In addition, a number of US-based and Asian-based investors are looking to reduce their European exposure. While Europe is viewed by many to be in much better shape, there are still concerns over the long-term recovery of several European countries, in particular in southern and eastern Europe. The US is considered a safer place to deploy capital and LPs are focusing on that market first.

Are zombie deals driving the secondary market?

Zombie deals have represented a very small portion of the secondary market volume so far, but they are likely to increase in number.

Managers who raised first-time funds in 2005 to 2008 have come to the end of their investment periods by now, and as time passes they are coming ever closer to the end of their fund lives. If such managers are not able to raise a subsequent fund soon, their existing funds will be considered zombies. But in the meantime, many managers should be able to sell their best assets, so that the remaining value in their funds will be quite limited.

Keep in mind that the wave of venture capital zombie funds in 1998 to 2000 never reached the volume predicted by many.

We already see opportunities in the US and Europe, and we expect to see them increasingly in Asia, as many first-time funds were raised there in recent years. Zombie fund restructuring often involves a change of management, which typically entails changing the incentives for new managers through a new carried interest scheme. This is the case with several Asian funds, which have seen a turnover within their teams, and this can eventually lead to a restructuring in order to incentivise the remaining or new management of the fund.

Who invested in Crown Global Secondaries III?

CGS III's investor base consists of more than 80 institutions and includes sovereign wealth funds, government pension funds, corporate pension funds, insurance companies, endowments and foundations.

Half of the investors are based in continental Europe, 19% in the Asia‐Pacific region, 14% in North America, 12% in the UK and 5% in the Middle East.

Hertfordshire County Council awarded LGT a multi-alternatives mandate of £280m. This includes nine alternative asset classes such as hedge funds, commodities, insurance-linked securities, property and private equity. Secondary investments are part of the mandate.

What is the vehicle's investment focus?

CGS III will invest in private equity secondary transactions on a global basis geographically, acquiring buyout, growth equity, venture capital, infrastructure and real estate funds.

We will continue to acquire private equity assets on a global basis, including situations in which management teams are looking to spin out from their historical sponsor, which can no longer support them with sufficient capital. Our focus is on high quality GPs and assets, primarily in buyouts and growth capital.

LGT is also often contacted by general partners who want to reshape their base of limited partners, as existing LPs may not be able to commit anymore, due to regulatory or financial constraints.

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