FORTUNE — Ardian, the investment firm previously known as AXA Private Equity, today announced that it has raised $10 billion for a new fund that will mostly purchase interests in buyout funds ($9 billion for these secondaries, plus $1 billion for primary fund commitments). It is the largest capital pool ever raised for private equity secondaries, although Lexington Partners is in market with a new fund that may ultimately raise a bit more.
Maybe I’m just a worrywart, but this seems to be a strange time to be ramping up such deals. Private equity firms are legally required to include public equity valuations when marking their private portfolios, which means that current holding valuations reflect the 5-year bull market run. That’s fine for the actual fund managers, because interim valuations don’t really have much impact (except when raising their own funds). For secondary players, however, those valuations serve as pricing guidance (for both discounted and premium bids). Isn’t this exactly when firms like Ardian should be backing off a bit?
I raised these concerns with Benoit Verbrugghe, an Ardian managing partner who runs the UK-based firm’s U.S. business. Not surprisingly, he disagrees.
For starters, he stressed that secondaries have evolved from focusing primarily on distressed sellers to active managers. That means that secondary buyers have more opportunity to cherry-pick funds within a portfolio, rather than needing to provide maximum liquidity. And Verbrugghe believes that his firm can identify assets that still have upside, compared to those that are at their peak valuations. Equally important, he argues that there only are a handful of possible bidders for a growing number of large secondary opportunities ($500 million to $2 billion), thus providing greater leverage to Ardian and its few rivals.
Interested in your thoughts: Am I right to be skeptical of future returns here — despite Ardian’s strong track record — or are you agreeing with the guy who just raised $10 billion two years after raising $8 billion?
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