Investors flock to Lehman FoF IPO

Lehman Brothers’ listing of a fund of funds vehicle has attracted significant investor demand, including an 84 percent allocation of its greenshoe, showing that successful fundraising is still possible despite the recent volatility in the public markets.

Lehman Brothers’ IPO of its Euronext-listed private equity fund of funds raised $542.1 million (€401 million) after it issued a $42.1 million greenshoe.

The extra issue of 4.2 million shares in Lehman Brothers Private Equity Partners at $10 per share – the same price at which the fund launched on July 18 – nearly reached the allotted maximum of 5 million shares. The fund has also established a credit facility of $250 million with the Bank of Scotland, which is designed to support an over-commitment strategy.

The bullish uptake comes as worries about worldwide credit markets have caused many analysts to call the top of the private equity fundraising cycle.

Yet others argue the credit crunch has not been drastic for fundraising. Mounir Guen, chief executive of MVision told PEO: “Funds aiming for Q4 07 are now aiming for Q2 08 but that’s ok because they were ahead half a year because of the boom. Yet those who have touched the moon will stay among the stars. I know how to raise a billion now and our mentality has altered. There are tonnes of ideas and tonnes of money out there in the funds – it has changed irrevocably.” 

The Lehman fund came to market 50 percent invested. A source close to the bank said the fund was innovative due to the transparency it offered investors, providing them with breakdowns of net asset value on a regular basis.

In an attempt to ensure a successful offering, Lehman Brothers committed to invest all proceeds from the listing into a partially funded portfolio of direct and indirect private equity investments, diversified across geographies and vintage years.

Lehman Brothers said at the launch the purchase price of this portfolio would be $260.5 million, with related unfunded commitments worth $354.1 million.

The immediate deployment of investor capital is designed to reduce or eliminate the so-called cash drag on the listed vehicle, and thus avoid pressure on the share price in the secondary market.

There are also other investor-friendly features. Lehman Brothers have assumed all costs of the IPO and committed to subscribe to $145 million of shares in the IPO, subject to a three-year lock-up, while management fees will be charged on invested capital only.

The share price of the entity opened down 9 percent this morning at $9.10.