10-3-17 7:14 AM EDT | Email Article
By Dawn Lim and Laura Kreutzer 

Warburg Pincus is selling a roughly $1.2 billion slice of Asian investments from one of its funds to secondhand buyers, said people familiar with the matter, a move that demonstrates how private-equity firms are using secondary market deals to reshape their portfolios and return cash to investors.

Lexington Partners and Goldman Sachs Group Inc.'s asset management arm are the largest buyers in the deal, which also includes other investors, the people said. These institutions will get a strip of the Asia deals that Warburg backed through a $11.2 billion fund that the firm started investing in 2012.

When Warburg Pincus Private Equity XI LP completed fundraising in 2013, the fund ranked among the largest private-equity funds raised after 2008. Now the sale of its Asian assets, set to close this month, would rank among the largest trades involving a portfolio of Asian private equity-backed companies to secondhand buyers.

The transaction reflects growing use of the secondary market by blue-chip private-equity firms to accelerate the flow of money back to investors as pensions and endowments increasingly seek funds that deliver strong cash streams in a low-interest rate environment.

Once completed, the sale will reduce exposure to Asian companies in Warburg Pincus's Fund XI to roughly 40% from around 50% prior to the deal, said people familiar with the matter. Since Warburg began investing the global fund in 2012, the portfolio's exposure to Asia expanded as its bets on health care, logistics, financial services, retail and technology companies appreciated.

Lexington, the largest investor in the deal, Goldman and the other institutions will buy into slightly over a fifth of all those Asian investments. They also have set aside some money for future funding rounds in the companies.

Through the global fund, Warburg built an expansive Asian portfolio of 29 businesses in China, India and Southeast Asia, according to people familiar with the matter. Around two-thirds of that portfolio is invested in China, including Beijing Amcare Women's & Children's Hospital and trucking company Shanghai ANE Logistics Co. Investments in India account for about 30% of the Asia portfolio.

Warburg will continue to manage the investments that these institutions have bought in lockstep with the flagship fund, the people said. Warburg's Fund XI had returned 1.4 times invested capital and generated an internal rate of return as of 13.6%, as of March 31, according to an investor document.

The private-equity manager, which recently invested in Chinese bike-sharing giant Beijing Mobike Technology Co. and Indian cinema operator PVR Ltd., continues to double down on Asian deals. It raised $2 billion for a China-focused fund last year and another $13.4 billion for a new global fund in 2015.

Warburg is thinking more strategically about the secondary market as part of its tool kit to manage cash flows, said one person familiar with the matter, though no other active process currently is in the works.

As buyers of secondhand stakes continue to amass investor money, the market for such deals is set to grow. Goldman Sachs Asset Management has raised at least $7 billion for Vintage VII LP, its latest fund set up to buy secondhand private-equity interests, according to a person familiar with the matter.

Meanwhile, Lexington Partners raised $10.1 billion to purchase secondary stakes in 2015 and recently closed a fund focused exclusively on smaller secondary deals at $2.66 billion. Since the firm opened a Hong Kong office in 2010, it has purchased around $2 billion in Asian private-equity stakes on the secondary market, said a person with knowledge of the matter.

Write to Dawn Lim at dawn.lim@wsj.com and Laura Kreutzer at laura.kreutzer@wsj.com

 

(END) Dow Jones Newswires

October 03, 2017 07:14 ET (11:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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