Goldman Sachs Group Inc’s asset management unit on Monday said it has raised $5.5 billion from investors to start a fifth fund dedicated to buying private equity investments on the secondary market.
The new fund, GS Vintage Fund V, follows earlier funds in which Goldman raised close to $6 billion in total. The most recent was in March 2007, when Goldman said it raised $3 billion.
But in a letter to investors obtained by Thomson Reuters unit peHUB, Goldman said it may have to write down some of the fund’s early investments, reflecting an accounting change, currency fluctuations and a “severe decline” in the value of comparable investments amid a “difficult” financial and economic environment. A writedown may total 5 percent to 9 percent of the portfolio, peHUB said.
A Goldman spokeswoman had no immediate comment.
Investors are forming funds to buy secondary interests as financing remains scarce, with the global credit crisis approaching its second anniversary. Goldman’s new secondary fund is the largest of its type, the Financial Times said.
“Since late 2008, there has been a lot of interest” in secondary market transactions, said Colin Blaydon, a professor at Dartmouth College’s Tuck School of Business and director of its Center for Private Equity and Entrepreneurship. “As long as the economy and the capital markets struggle, there will be a fertile market for secondaries.”
Goldman expects the new fund to buy portfolios of private equity assets, including limited partnership interests in private equity funds, with transactions ranging from $1 million to more than $1 billion.
There are about $2.5 trillion of private equity assets worldwide, London-based research firm Preqin said last month. Secondary private equity investments frequently trade at a large discount, as institutional investors seeking to bolster liquidity try to raise cash through asset sales.
About 9 percent of institutions with private equity holdings may conduct sales on the secondary market in 2009, with another 1 percent saying they are “extremely likely” to do so, according to a Preqin survey conducted in December and January.
“Across the spectrum, investors are concerned about future capital calls, and a motivation for much of the selling is fear among investors about liquidity,” Blaydon said. “Over the last two months, buyers and sellers have come closer to each other on pricing, which would allow more transactions to get done.”
Last August, a consortium led by Goldman agreed to buy some private equity holdings being divested as part of the breakup of Dutch bank ABN Amro Holding NV.
Goldman Sachs Asset Management oversaw $779 billion of assets as of November 2008.