Morgan Stanley Investment Management has wrapped up a $2.5 billion secondaries fund, providing yet more evidence of investor appetite for vehicles that offer LPs an exit avenue from their private equity commitments.
Ashbridge Transformational Secondaries Fund II is about four times larger than Fund I, which closed in 2018 on $674 million. Fund II focuses exclusively on single asset GP-led continuation vehicles in the middle market.
Continuation vehicles have gained momentum as a way to give investors liquidity as interest rates remain high and LPs apply pressure on their managers to show returns for their longer-term, private market commitments—a difficult mandate in a deteriorating exit environment.
In 2022, exits saw a drastic drop in activity, plummeting 66.3% in total deal value year-over-year, according to PitchBook’s 2022 Annual US PE Breakdown. GP-led continuation vehicles offer an alternative exit option to traditional routes, like a public listing or a sale, and permit GPs to hold onto trophy assets they don’t want to sell at a discount in the current marketplace. To create liquidity for their LPs, GPs can drop those assets into a continuation vehicle on the secondary market. LPs can then cash out or roll their capital into the new fund.
For LPs, GP-led secondaries provide direct exposure to a single asset transaction closer to the exit finish line. These assets are typically farther along the J-curve, giving their fund vehicle realized returns earlier in its lifespan, said Ken Smythe, founder and CEO of Next Round Capital Partners, which facilitates secondary transactions, in an email.
Morgan Stanley’s fund close follows on the heels of Blackstone‘s Strategic Partners IX, which closed on $22.2 billion in January, making it the world’s largest secondary fund since Ardian closed its $19 billion vehicle in 2020.
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