January 10, 2024 (Preqin News) - Lexington Partners has closed Lexington Capital Partners X, its largest secondaries fund, after raising $22.7bn in total commitments, more than 50% above target, indicating the continuing popularity of secondaries among both GPs and LPs.
Lexington Capital Partners X, which had a target of $15bn, is the firm’s biggest fund to date and is significantly larger than its predecessor, which closed at $14bn in 2020. Lexington X held a first close in November 2022 with $12.8bn of commitments.
The latest fund attracted more than 400 investors, including public and private pension funds, sovereign wealth funds, and insurance companies from North America, Europe, Asia-Pacific, Latin America, and the Middle East.
In a press release on January 9, Lexington said that the fund will focus on acquiring private equity and alternative asset portfolios from large-scale investors targeting liquidity or looking to rebalance their portfolios.
Secondaries have grown in popularity in the last two years as LPs and GPs search for liquidity solutions amid a difficult exit environment. At the start of 2024, there were 168 secondaries funds in market seeking nearly $140bn in capital, according to Preqin data, while secondaries fundraising jumped last year to $70.7bn, more than double the $33.1bn raised in 2021. Secondaries have proved a bright spot in the private equity landscape, where other strategies have endured more difficult fundraising.
Nonetheless, the time in market has been increasing for secondaries funds over the past five years, with the period from launch to final close rising steadily from a low of 10 months in 2019 to 23 months in 2023. At the same time, the average amount of capital raised compared to target has also increased, but at a lower rate, up from 119% of target in 2019 to 126% in 2022. Lexington X was in market for 25 months and raised 151% of its target.
‘We believe we're in the early stages of a generational secondary buying opportunity in private markets that will take multiple years to play out,’ Pål Ristvedt, Partner at Lexington, said in a statement announcing the fund’s close. ‘During times of economic uncertainty and slowing portfolio company exits, the secondary market can be an important release valve to provide liquidity to investors.’
Lexington has already committed over 40% of the new fund, with more than 50 transactions executed with a range of sellers, including public and private pension funds, banks, and other financial institutions.
Despite the value of secondaries fundraising increasing in 2023, the number of funds decreased, dropping from 70 in 2021 to 53 last year. This shows how a greater share of investment is being secured by larger vehicles. Mega funds from Blackstone ($22.2bn), Goldman Sachs ($14.2bn), Glendower Capital ($5.8bn), Pantheon ($3.3bn), and Adams Street Partners ($3.2bn) helped drive an increase in average fund size to $1.4bn, up from $542mn in 2022.
The trend looks set to continue, with a number of large funds currently in market, including from Ardian ($25bn target), Lexington Capital Partners ($15bn and $4bn), HarbourVest Partners ($12bn), AlpInvest Partners ($10bn), and Coller Capital ($10bn), according to Preqin data.
With demand for secondaries widely forecast to remain robust, some stakeholders expect not just fundraising to hold up, but that the secondaries market will further evolve.
‘Not only have many raised their largest-ever flagship secondaries funds, but interest in more bespoke secondaries strategies, such as single-asset recaps only, or credit secondaries, has been growing,’ Ropes & Gray suggest in the law firm’s 2024 outlook. ‘We’ve also seen a marked shift in how secondary buyers are approaching larger deals and we are seeing some buyers elect to raise co-invest capital to consummate a larger deal versus pairing with a co-lead as they might have done in the past, although co-lead deals remain common, particularly in larger deals.’
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