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Conversus commits $70m to TPG and TowerBrook funds

Despite further gains in its portfolio’s value the fund of funds' discount to NAV is increasing as listed private equity firms continue to suffer.

Conversus Capital, the Euronext-listed fund of funds, has committed $70 million (€42 million) to the latest fundraisings by TPG Capital, the global buyout firm, and TowerBrook Capital Partners, a transatlantic private equity firm, according to a Conversus trading statement.

TPG is fundraising and has reached $10 billion, according to one investor. He said the firm could collect as much as $20 billion. The size of Towerbrook’s fundraising was undisclosed.

The firm has also committed $40 million to two other unnamed primary funds. 

Conversus’ net asset value (NAV) increased by 1 percent between 29 February and 31 March continuing the broad advance of its NAV by 10.4 percent since its initial public offering on July 2007, with a NAV per share of $27.61. Despite this, its share price has fallen by 12 percent since listing to $22 per share at 1220 CET, with the trust trading at a discount to NAV of 20.5 percent.

Tim Smith, chief financial officer at Conversus, told PEO: “We tell people very candidly we think NAV is the best indicator of value. To trade at a discount doesn’t make sense to us although we understand why people are sitting on the sidelines.” 

Numerous buyout firms are trading at discounts to NAV as public market investors have reacted with suspicion to present valuations in the wake of the credit crunch. Bellwether listed private equity stock KKR Private Equity Investors, the quoted fund with direct access to Kohlberg Kravis Roberts’ funds, is trading at $14 per share, a net asset value discount of around 42 percent to its NAV valuation of $24.36, as of December 31.

Conversus made $15 million net realised gains in March, with $7.6 million included in prior reports as an unrealised gain, and $7.4 million not previously reported. The firm has also had approximately $21.5 million unrealised gains in March. 

The firm has a relatively mature portfolio, having hand-picked its assets from the legacy private equity portfolio of Bank of America. Its average portfolio company life is 3.7 years and its average fund life is 6.7 years, effectively driving realisations and lessening the J curve effect, while also providing the fund of funds with liquidity.

“The key to our stategy is staying at the right spot on the J curve,” Smith said.

Conversus closed on $95 million of the funds it has agreed to purchase from the California Public Employees' Retirement System, acquiring a $183 million portfolio with unfunded commitments of around $24 million, as of June 30. The firm completed the acquisition of five funds valued at $71 million last month and three further funds at $24 million in April. The remaining funds are expected to close in the second or third quarter.

Mark Wolfson, a member of the firm’s investment committee and the co-founder of Oak Hill Investment Management, the private equity firm, said in a market update he believed worries about 2006 and 2007 vintage funds are overdone, especially because the mega buyouts of this time have “locked-in cheap financing”.