Unigestion holds EUR 900m final close for fifth secondaries fund

The fund was launched in January 2020 and the GP announced a first close in June 2020 on EUR 228m, as reported.

Arendth & Medernach is providing legal advice on the fundraise, according to Unquote Data.

The fund is almost three times larger than its predecessor vehicle, which held a final close in December 2017 on EUR 306m.

The fund’s current portfolio is performing well in spite of the current macroeconomic situation, according to Newsome. “Our strategy has always been about targeting hand-picked concentrated portfolios of high quality, high growth companies with no use of deal leverage, and at the moment we’re seeing the ultimate test of this, with pubic markets dropping 20% on average in the last six months,” he said. “Despite the market environment, we are still seeing value accretion in our portfolio; EBITDA growth continues to be strong and we have considerable downside protection thanks to low entry valuations.”

The GP is keeping a close eye on valuations as it assesses further deployment from the fund. “We’re waiting on Q2 valuations, which are typically finalised from mid-August onwards,” Newsome said. “But we are already seeing that any downward pressure on EBITDA multiples in the portfolio due to market adjustments will be more than compensated for by EBITDA growth. In the mid-market, we and the GPs with whom we partner have always been quite conservative about the discounts being applied to public market comparables. So when the markets were at their peak and quite toppy, we already had a large amount of buffer in the valuations, which is paying off in terms of stable valuations now.”

Due diligence is of ever-increasing importance for the fund's upcoming deployment, according to Newsome. "It’s more important than ever for us to apply our bottom-up way of viewing a secondary." he said. "We have a direct investment mindset, so for each underlying portfolio company, we do the same level of due diligence as we would for a direct investment."

Given that USEC V is now more than 50% deployed, the GP is turning its attention to its next fund alongside the deployment of its current vehicle. “We will start thinking about the next fund when we are 75% committed, which could easily be at the end of this year or beginning of next,” Newsome said. “We still want to stay true to our end of the market where we target smaller, less competitive deals. We like to acquire concentrated portfolios of high growth companies where there is substantial value creation, so what we will not do is take large multi-fund portfolios, as this ends up being a leverage game.” He added that the GP does not use leverage as it aims to make its returns based purely on growth and attractive pricing.

The GP’s current fundraising activity also its second Emerging Managers Choice fund, according to Unquote Data. The fund has a EUR 300m target and will make a mixture of fund and direct investments with European emerging managers. The GP made a filing for its debut Climate Impact Fund in June 2022, as reported. The firm launched its third Direct fund with a EUR 1bn target earlier in June, as reported.

Investors
The fund’s LP base is comprised of institutional investors including public and private pension funds, insurance companies, foundations, asset managers and wealth managers from Europe, the US and Asia, Newsome said. The fund had an 80% re-up rate and has more LPs than the previous funds in the strategy, he added.

Investments
USEC V targets non-intermediated deals sourced through GP and LP relationships with a sweet spot transaction size of EUR 30m-EUR 50m, Newsome said.

The fund expects to make 40-45 deals in total, 40% of which will be GP-leds and 30% of which will be LP stakes, with the remainder consisting of a blend of direct secondaries or structured secondaries. USEC V has made 28 investments to date.

Within the GP-led space, Unigestion has mainly done single-asset deals, with some double asset deals and sidecar vehicles, Newsome said.

The fund has a global mandate and expects to have an approximate split of 40% of its deals in North America, 40% in Europe, and 20% in APAC, although it can deviate from this opportunistically, Newsome said.

LP stake opportunities are becoming increasingly attractive in the current market as valuations are coming down, according to Newsome. “We can target high quality portfolios, managed by GPs we know well, which we have been closely tracking,” he said. “There might be more interest in LP stakes as these become more attractively priced. However, the increased demand will be easily matched by more supply from LPs needing to sell due to liquidity or denominator effect issues.”

Although the fund has made a number of GP-led deals to date, this could shift as the fund deploys the remainder of its capital. “In terms of portfolio construction, it’s the perfect time to pivot away from GP-leds into LP stakes,” Newsome said. “We like the cashflow profile of LP stakes since we expect cash to come back more quickly than for GP-leds. We look for mature portfolios, but not tail-end ones, with exit visibility over the next 12-18 months.”

Nevertheless, there is still significant interest in GP-leds due to the sheer amount of capital that secondaries investors have to deploy, Newsome noted. “In general, across the market, the bar will be raised and the quality of the assets will be important,” he said. “We have a series of check boxes in terms of what we need from a GP-led and this has not changed. We’re looking for resilient, high growth companies which play our investment themes, attractive pricing, a clear value creation plan, and GP alignment is very important; they need to be putting a lot of skin in the game.”

People
Unigestion – Paul Newsome (head of portfolio management, private equity).

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