JLL LPs agree to Fund V extension after rejecting secondary

JLL Partners explored potential liquidity options for investors in its fifth fund, which closed on $1.5 billion in 2005, three people with knowledge of the process said.

The firm, founded by Drexel Burnham Lambert veteran Paul Levy in 1988, worked with Lazard to launch a process for Fund V limited partners to sell out of their stakes. But after discussions with LPs, the GP and investors agreed to an 18-month fund extension late last year, according to two of the people.

LPs weren’t interested in selling at a discount, said one LP who heard the pitch. The process never got beyond its early stages, two of the people said.

LPs said, “focus on getting out of the portfolio in the normal course,” one of the people said.

Fund V has three major investments remaining: construction-materials supplier Builders FirstSource, payday lender ACE Cash Express and contract drugmaker Patheon, two sources said. Both Builders FirstSource and Patheon are publicly listed.

Fund V was generating a 9.95 percent internal rate of return since inception as of Dec. 30, 2015, according to performance information from Colorado Public Employees’ Retirement Association.

ACE Cash Express was the subject of a secondary-sale process in 2015, when New Jersey Division of Investment determined the company violated state law against payday lenders. The pension system sold its stake in Fund V at the end of 2015 for 97 percent of its March 31, 2015, net asset value, Buyouts reported at the time.

LPs have been declining to sell into liquidity processes GPs launched for older funds, sources have told Buyouts. LPs say they don’t want to sell their stakes in funds at a discount when they can simply hold their interests until GPs sell remaining portfolio companies.

And in the low-interest-rate environment, LPs don’t have a lot of options to park their money if they do sell.

About $10.1 billion was in direct secondaries like GP-led transactions in fiscal 2016, according to fresh research from secondary intermediary Setter Capital. That was down from $10.2 billion in fiscal 2015.

About 55 percent of the 94 respondents to Setter’s secondary-volume survey said more GPs tried to liquidate or restructure older funds in fiscal 2016 compared with the prior year.

Action Item: Read more about JLL here: https://www.jllpartners.com/transaction-team 

Paul Levy, founder of JLL Partners. Photo courtesy of the firm.