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November 30, 2016  

Rosebrook Still Hunting for Anchor Capital

Rosebrook Capital hopes the coming months will see it find an anchor investor for its latest secondary-market fund.

The New York firm has been trying since February to raise $250 million to $500 million for its planned Global Secondary Acquisition Fund, with perhaps $100 million of that amount ideally coming from a single large backer. But it has yet to reach a deal with such an investor.

When Rosebrook launched its previous fund in 2012, Deutsche Bank stepped up as the anchor investor. With the German bank facing broad financial strains, however, it signaled even before the new vehicle hit the market that it wouldn’t return.

That set Rosebrook and placement agent Stonehaven on the hunt for a replacement that ideally would be on board for a first close. In fact, Rosebrook chief executive Andrew Lawrence decided against holding an initial close at midyear with a smaller amount of capital because he wanted to wait for an anchor investor to sign on.

Lawrence’s marketing efforts so far have included more than 300 investor meetings, which suggests healthy interest in the offering. And he remains in negotiations with several prospective anchor-capital sources, with the potential for a deal to be inked by yearend.

Such a move would greatly improve Rosebrook’s overall marketing outlook, at a time when the clock is ticking on a self-imposed goal of completing the process within 18 months. Along with its push to find an anchor backer, the firm is shopping a founders share class with a 1% management fee and a 10% performance fee — as opposed to charges of 1.5% and 15% for later investors.

Rosebrook’s previous fund, Aggregator Solutions, is expected to finish unwinding at yearend 2017, with projected internal rates of return of 23.1% and 26% for its two versions. The vehicle deployed $223 million overall, and by yearend 2015 returned half of that amount to shareholders while pegging the value of its remaining assets at $281 million.

Rosebrook buys shares of hedge funds that are unwinding but can’t cash out of illiquid assets — a strategy that allows it to accumulate positions at deep discounts. Aggregator Solutions, for example, bought its assets at an average of 33% of their net asset value.

Going forward, Rosebrook is banking on the idea that an increasing number of failures in the alternative-investment world will bring a heavier flow of secondary-market sales. Consider that fund-of-funds operator Aurora Investment auctioned off $120 million of illiquid hedge fund stakes in mid-October, with at least half of the positions selling at discounts of 50-60%.

The positions represented the remnants of a single separate account that presumably was once much larger. Aurora, meanwhile, has been unwinding following a failed deal this year to sell itself to a unit of Northern Trust.

Rosebrook only has a few competitors when it comes to bidding on such offerings. They include Dorchester Capital, startup Jupiter Peak Capital, LSV Advisors, Morgan Stanley Alternative Investment Partners and Origami Capital.

Lawrence started Rosebrook in 2009 with Jonathan Lewis, who left in 2015.