06/23/2010

AXA Spreading Out Massive BofA Package

AXA Private Equity wants to syndicate part of the $1.9 billion portfolio of private equity fund stakes it purchased from Bank of America in April.

The effort is aimed in part at paring down AXA's share of the package, which was among the largest to trade on the secondary market in recent years.

While the exact syndication process is still hazy, it appears AXA is going with a traditional co-investment format in which various players are invited to take part in a deal. Only in this case, it's happening after the initial purchase has already closed.

AXA is focusing its pitches on large pension systems and endowments, including those in its own limited-partner base. The firm doesn't plan to take much of a fee on top of what it has already paid for the investments.

While unusual, there is some precedent for the scenario. And there are several reasons AXA would want to spread its purchase among other investors. For one, a single-shot deal of that size comes with a lot of risk. And by offering the holdings as co-investments rather than plowing them into a fund with higher fees, the shop stands to generate some goodwill among its backers.

There's also the issue of capacity. AXA's most recent secondary vehicle, AXA Secondary Fund 4, has $2.9 billion of equity overall. According to Preqin data, the 2006-vintage entity had a little more than $2 billion of dry powder left when the deal was struck.

However, AXA likely didn't have to pay the full amount for the BofA portfolio up front, and could have spread the purchase across more than one fund. Managing director Vincent Gombault said at the time that AXA still had $1 billion left for future deals. That was just days after AXA agreed to buy a $718 million secondary-market package from Natixis.

Still, the BofA transaction could position AXA to begin its next fund-raising drive. "Our impression is this is going to kind of tap out their current fund and then some, and this gives them the ability to start raising a new fund and give some co-investments to their investors," one secondary-market manager said.

One possible obstacle for AXA is convincing buyers that the BofA investments are worth what it paid, an estimated 90 cents on the dollar or more. Along the same lines, it has to find takers who can grasp secondary-market values in the first place. "I think it's really hard to syndicate a deal broadly like that because not a lot of people have the expertise to understand it," another source said.

A few big buyout-fund operators run a large portion of the vehicles in the pool.

Separately, another wrinkle has emerged in the deal. It turns out that a group of BofA personnel who agreed to spin off to New York hedge fund manager Sterling Stamos are the same ones running the portfolio AXA just bought. The Charlotte-based crew, encompassing group head Jason Cipriani and about 10 others, negotiated the move as part of the sale. They will continue to oversee the investments on AXA's behalf and will collect a small fee for doing so. They will also manage some private equity fund interests that BofA didn't sell.