Secondaries Startup Scores with First SPVs

An initial investment by private equity secondary fund buyer Seine Capital this year is already paying off for the Paris startup, which is planning to hold a $50 million first close in a debut commingled fund in the next few months.

A $15 million portfolio of positions in four funds, managed by two firms, that Seine bought in late February at a 40% discount to par is now expected to produce exits that will repay 70% of the full deal’s equity investment in the next few months.

That surprising outcome is a result of underlying positions in two companies representing less than 20% of Seine’s purchase value. The positions are slated to have exits that are both more valuable and to come faster than expected. Those exits are slated for about six months earlier for one deal and more than four years speedier for the other.

The favorable result is also because of a combination of Seine’s ability to identify the deal while avoiding other competitors, to fully vet each of the 36 underlying companies in the portfolio and to buy at a particularly low valuation.

The portfolio, and a subsequent acquisition of another fund portfolio for $5 million in March that was acquired at a 50% discount to its net asset valuation, were each purchased through two special-purpose vehicles, not through the commingled fund the firm is currently marketing.

But the results from Seine’s early deals are likely to attract additional attention to its debut fund, called Seine capital Liquidity Solutions. The firm is seeking $150 million for that vehicle, and it has imposed a $200 million hard cap on the offering to show investors it doesn’t plan to overload its fund with too much capital.

Seine transacts its deals via a large network – developed over the years – of very small brokers that allow the firm to exclusively look at its potential deals. Seine separately bought its initial two portfolios from a U.S. family office and a European family office. Both sellers needed liquidity in a hurry, with one needing cash fast to invest in another deal.

Seine has a staff of five and was founded by managing partner Fabrice Moyne and partners Chad Zidow and Sol Zein, all of whom have deep experience in the secondary-stake business.

Before setting up Seine, Moyne worked for 11 years at Mantra Investment Partners, where he started in 2011. He founded that firm’s secondary business, which raised €400 million ($434 million) via three dedicated funds, and which now represents the bulk of Mantra’s assets.

Moyne previously ran the private equity portfolio at University of Minnesota Foundation.  Zidow earlier worked with three private equity secondary-stake buyers: The Beneficient Company, Landmark Partners (now a unit of Ares Management) and Crestline Investors. Zein was active in the secondary market at Montana Capital, Pantheon Ventures and NXT Capital Partners, the latter of which he closed to join Seine.

Seine focuses on smaller deals of $3 million to $15 million each, a size range that’s often overlooked. Larger firms with far more capital available don’t have the capacity to devote resources to such small acquisitions.

The firm is primarily seeking to buy stakes in private equity buyout funds, but it will also focus on other types of funds including those targeting credit, growth equity and infrastructure plays.

Seine also will buy stakes in companies themselves, from owners including hedge funds, and it will invest in firm-led secondary purchases via so-called continuation vehicles. In those cases, a private equity firm is looking to raise additional capital to continue to develop the value of companies in funds that are approaching the end of their terms.

Seine also has an allocation for more esoteric- focused funds, such as those that invest in litigation finance, music and pharmaceutical royalties.

Seine, which doesn’t use leverage, intends to produce a minimum net internal rate of return of 25% and to return to investors twice the amount of capital it invested. That’s higher than for most other secondary-fund stake buyers. The firm also intends for the fund to have at least its invested capital returned to them within three years. Its fund has an eight-year total term.

Seine takes an extensive bottom-up approach with full analysis of every underlying investment, a practice that doesn’t typically happen with most secondary-fund stake buyers. Because of that, it plans for the bulk of its deals to have exposure to well less than 50 individual companies.

Fundraising in the secondary-fund stake market is robust, but the vast majority goes to the largest firms in the business, which include Ardian, Ares’ unit Landmark, Lexington Partners, Blackstone and coller capital. As a whole, secondary buyers raised a record $86 billion in 2023, according to deal broker campbell Lutyens, and they had $174 billion of uncalled capital in the beginning of 2024.

Stakes sold by limited partners had become more expensive as of year-end 2023, selling at 16% below par, down from 22% a year earlier. Deal volume was at $111 billion last year, up from $106 billion in 2022 and down from 2021, when stake sales hit a record high of $135 billion.

Source: Hedge Fund Alert, the weekly update on fund management intelligence