Goldman, Coller May Buy Stakes in Lehman's Private Equity Funds

By Jonathan Keehner and Serena Saitto

Oct. 23 (Bloomberg) -- Goldman Sachs Group Inc., Coller Capital and Lexington Partners Inc. are weighing bids for Lehman Brothers Holdings Inc.'s investments in U.S. and European private-equity funds, people with knowledge of the matter said.

Lehman is trying to sell stakes in real estate, merchant banking and venture-capital funds with about $15 billion of assets, according to the people, who declined to be identified because the talks are confidential. The venture capital portion is expected to be sold by November, the merchant holdings and real estate by year end. As many as a dozen potential buyers have indicated interest, one of the people said.

The disposals may lead a wave of so-called secondary sales, as investors seek to buy others' stakes in private-equity funds at distressed prices. Between $12 billion and $15 billion of secondary interests changed hands last year, and the figure may double in the next 12 months as banks with credit-market losses try to raise cash and pare hard-to-value holdings, according to Coller Capital's Frank Morgan.

``I don't know of a bank that's not considering selling non- core assets including private-equity interests,'' said Morgan, a Coller partner in New York. The London-based firm invests in buyout and venture-capital funds and raised $4.8 billion last year for a fund targeting secondary sales.

Morgan declined to comment on the pending Lehman sale. Representatives of New York-based Lexington, which oversees $10.2 billion of secondary private-equity funds, and Goldman Sachs, which raised $3 billion last year for a fund that invests in secondary sales, declined to comment. Officials at Lehman and Lazard Ltd., which is managing the sale, also declined to comment. Goldman, Lehman and Lazard are based in New York.

D.E. Shaw, SRAM

``The investment teams for these funds remain intact and focused as we actively pursue the best strategic alternatives for these businesses,'' Lehman said in an Oct. 2 statement. ``As always, a primary consideration is the best interests of our investors.''

Once the fourth-largest securities firm in the U.S., Lehman filed the biggest bankruptcy in the nation's history on Sept. 15. A crisis of confidence in Wall Street firms had eroded 94 percent of the company's market value since the beginning of the year.

The fund stakes Lehman plans to dispose of were left behind when the firm agreed to sell most of its investment management business to private-equity firms Bain Capital LLC and Hellman & Friedman LLC on Sept. 29. That sale was challenged by Carlyle Group, the world's second-largest private-equity firm, which may make its own bid by December.

Lehman's private-equity assets include stakes in New York- based hedge-fund firm D. E. Shaw & Co. and investments in companies such as Angelica Corp., the Chesterfield, Missouri- based hospital linens provider, and SRAM Corp., the Chicago-based bicycle components company.

`Perfect Opportunity'

An unresolved question that may complicate the sale is how the funds, which include commitments from institutions other than Lehman, will be managed. Fund managers from Lehman are considering buying some of the general partnerships that oversee the funds, according to two people familiar with the matter.

As more banks seek to shed stakes in private funds, the growing inventory of distressed assets may stoke concern about their diminishing value. Fund interests are already fetching discounts of as much as 25 percent compared with a year ago, said Craig Marmer, a partner at secondary placement agent Probitas Partners in San Francisco.

``It's a perfect opportunity for established secondary funds,'' said Marmer. ``Those teams that are really experienced will be out raising even more money.''

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.