Goldman to Launch Big Secondary Fund

By RANDALL SMITH and PETER LATTMAN Goldman Sachs Group Inc. is wrapping up $5.5 billion in investor commitments for a new fund to buy private-equity investments at a discount on the secondary market, people familiar with the fund said. The market for such limited-partnership interests has become one of the hottest sectors of the private-equity market, as some pension funds and endowments scramble to reduce their exposure to the sector. The new Goldman fund, GS Vintage Fund V, would be the largest secondary fund ever raised. The investment bank has emerged as one of the leading players in the secondary-buyout area, having raised four previous funds totaling some $6 billion. Other prominent secondary-fund firms include Lexington Partners Inc., Coller Capital and Pomona Capital. The new fund is part of Goldman's asset-management arm. The firm also has a big private-equity business of its own, whose last fund raised $20 billion in April 2007, in its merchant-banking unit. Sales of such interests are occurring at deeply discounted prices of 50% to 70% or more from face value, private-equity executives say. One reason for the discount is that such partnership interests -- such as a slot in a Bain Capital or Carlyle Group buyout vehicle -- often include the obligation to pony up more cash for future investments, the executives added. Another reason for the discounts is the imbalance of supply and demand. One expert on such sales said an estimated $125 billion or more in partnership stakes is being put up for possible sale, with only about $35 billion in capital available to make bids. Harvard Management Co., manager of the largest college endowment, tried last fall to sell roughly $1.5 billion in private-equity investments but was unsuccessful. The endowment decided against selling after it received bids at sharp discounts to what it thought the assets were worth. Goldman led one of the largest secondary-fund purchases last year when it agreed to pay about $1.5 billion for a portfolio of existing private-equity holdings divested as part of the breakup of Dutch bank ABN Amro. Write to Randall Smith at randall.smith@wsj.com and Peter Lattman at peter.lattman@wsj.com