BEX Capital, an investment firm dedicated to buying secondhand stakes in private equity funds-of-funds, has closed its fourth vehicle on $765 million—and for the first time has raised a small amount from nonprofit organizations, which will not be charged carried interest or management fees.

"If we can support NGOs by serving their financial needs, we'll be happy to help them that way," BEX Capital Chief Investment Officer Benjamin Revillon said. "We think it should be an industry standard that alternative investors and other money managers work for free for nonprofits such as American Red Cross and allow them to earn a gross return rather than a net return after fees."

BEX Fund IV is backed by new and existing LPs, including European family offices and individual investors who are private equity firms' executives, Revillon said. France-based BEX Capital also invested its own capital in the new vehicle.

A small part of the fund's capital was raised by selling "X shares," an initiative launched by the firm to give nonprofits access to alternative investment strategies at a lower cost. BEX capital doesn't charge its nonprofit clients management fees or carried interest. Nonprofit contributions are limited to 5% of the fund's hard cap ($37.5 million) and the firm will continue to raise capital from them until it reaches that limit, or the end of the summer, whichever comes first.

The fundraising for BEX Fund IV was wrapped up within about three months, illustrating investors' strong appetite for this strategy. The fund exceeded its target of $600 million and closed above the $750 million hard cap. Its predecessor vehicle was closed at $365 million in 2019.

BEX Capital purchases an LP's interest in funds-of-funds, secondaries funds and co-investment vehicles and holds these investments until the funds wind down. About 70% of its portfolio is invested in US fund managers and 15% to 20% in Europe; the rest is in other regions. It backs buyout, venture capital and growth equity funds. The new vehicle will underwrite deals that are in the $5 million to $1 billion offering range.

While funds pursuing this strategy are rare, there are other investment firms buying LP interests in PE funds-of-funds. Toronto-based Overbay Capital Partners, which manages more than $1.8 billion in assets according to its website, is a secondary investor seeking similar deals.

BEX generated more than 20% internal rate of return for its investments since its inception, according to Revillon.

Following the fund's close, it manages about $1.3 billion in assets.

"BEX Capital's approach is not common, but being that they were oversubscribed, it seems many LPs believe it is a good opportunity," said Hilary Wiek, an analyst at PitchBook, where she leads coverage of fund strategies and performance. "Over the past couple of years, money has been thrown at secondaries in general, though most are focused on the GP-led single asset opportunity." 

While investing in secondaries can mean a lower multiple on invested capital, the abbreviated timeframe in getting capital returned can translate to very attractive IRRs, Wiek said. 

"I think the fact that investing in secondaries does give you your money back sooner is part of the reason why this fund is popular with an individual client base," she said. "They are happy to be getting their money back sooner and be able to either reallocate it to new investments or spend it on large personal expenses like homes, weddings or college."

Featured image of Nice, France, by Henryk Sadura/Getty Images

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