General Atlantic, a growth investor that made early bets on Alibaba Group Holding Ltd. and Priceline.com LLC, has collected $3 billion for a fund that gives the firm more time and money to develop four companies it has backed.
The new pool includes up to $1 billion to support follow-on investments in the four companies: reinsurance intermediary Howden Group Holdings Ltd.; commodities market research provider Argus Media Ltd.; Mexican pharmaceutical company Laboratorios Sanfer; and online marketing services company Red Ventures.
“We’ve always asked, there must be a better way for us to continue holding our best investments for a very, very long period of time,” said Bill Ford, General Atlantic’s chairman and chief executive. “With the development of this new source of capital, we may have found a very powerful tool for our investors.”
General Atlantic is relying on a fast-growing tool in the market for secondhand private-equity assets, which is often referred to as a continuation fund. Firms raise capital for continuation funds to acquire assets they manage through older funds but that they aren’t ready to sell outright. Investors in the older funds can opt to cash out or roll their stakes into the newly formed continuation fund, which typically attracts money from private investment firms and other institutional investors.
Paris-based private-equity firm Ardian and Boston-based alternatives asset manager HarbourVest Partners LLC co-led the formation of General Atlantic’s continuation fund, with additional capital from the Canada Pension Plan Investment Board and Swiss private-equity firm Partners Group AG .
The use of continuation funds has grown in popularity as more private investment firms themselves turn to the market for secondhand private assets. Secondary deals driven by private investment firms hit an estimated $32 billion in 2020, accounting for more than half of total secondary deal volume for the year, according to a report issued earlier this year by secondary advisory firm Evercore Inc., which advised General Atlantic on its transaction.
Nigel Dawn, head of global private capital advisory at Evercore, said that so far this year, firm-led deals continue to dominate the secondary deal market with more managers using continuation funds.
General Atlantic has held each of the four companies that it plans to roll into the continuation fund for between five and 11 years. Managing Director Graves Tompkins said they are “the types of companies you would love to own forever.” According to Mr. Tompkins, who leads global capital partnering at the firm, General Atlantic initially backed the four companies out of different funds.
General Atlantic manages assets across investment vehicles that include commingled funds, separately managed accounts and permanent capital pools.
The global growth firm is giving investors in the initial funds that backed each of the four companies a range of options in how they want to handle the stakes they indirectly own. Those options include completely or partially cashing out of their stakes in the assets or rolling some or all of those stakes into the new continuation fund. For its part, General Atlantic is transferring into the new fund all of its own stakes in the assets as well as any share of profits, or carried interest, it would otherwise be able to claim, according to Mr. Tompkins.
“We don’t want anybody to think that we’re cashing out and allowing investors to continue on while we’ve already made our returns,” he said. “We’re happy to continue on here for as long as we hold these investments.”
General Atlantic aims to raise another continuation fund in a couple of years, when it will have several portfolio companies that would benefit from longer holding periods and more capital, Mr. Tompkins said.
“Not every investment works beautifully, but when you get one that does, where you have a terrific management team, a great market, a really good business model [and] great financial dynamics, you’d love to own it for a long time,” Mr. Ford said.
Write to Preeti Singh at preeti.singh@wsj.com
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General Atlantic Collects $3 Billion to Extend Ownership of Four Portfolio Companies - The Wall Street Journal
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