NEW YORK (The Deal) -- Investment bank J.P. Morgan (JPM) is exiting half its stake in its private equity portfolio, selling a portion of One Equity Partners LLC to AlpInvest Partners NV, run by the Carlyle Group, and secondary investor Lexington Partners.
The deal for almost 50% of the firm was reported by the Wall Street Journal as valued at about $2 billion; a number a source familiar with the situation confirmed.
The move is viewed as the first step in spinning out the PE firm that JP Morgan ran for more than a decade under its own umbrella — something the bank is required to do under Volcker Rule regulations that accompanied Dodd-Frank legislation in 2010. More than a year ago, JP Morgan announced plans that it would look to spin the entire entity out as a separate investment firm, but, now, it seems that the bank will continue to hold a sizeable stake, for an indeterminable period.
One individual in the limited partner community said it is widely anticipated that the new entity will soon look to raise new capital from a broader base of investors. The future independent firm will be called OEM Capital Advisors.
At the time JP Morgan announced its intent to spin out all of One Equity, the portfolio had approximately $4.5 billion in assets under management.
The deal is being struck as more investment banks are selling or otherwise disposing of their private equity investment assets, and, simultaneously, as a growing number of secondary market investors are clamoring for private market transaction stakes of existing PE portfolios.
According to a secondaries advisors' report from Cogent Partners Inc., rising prices for investments helped boost deal volume to $16 billion in the first half of the year, while advisory firm Campbell Lutyens & Co. Ltd. reported that by August volume rose to $25 billion. The prior year, 2013, also had been a heady one for secondary stake swaps, generating more than $27 billion in transactions, but now industry sources believe that 2014 will hit an all-time high for volume in the asset class.
News of JP Morgan's spin-out comes after a number of other banks (including prior JP Morgan assets) sold or spun out their in-house LBO shops –- including now-standalone shops Court Square Capital Partners LP (ex-Citigroup (C)), Irving Place Capital Management LP (formerly Bear Stearns Merchant Banking), MidOcean Partners LP (previously affiliated with Deutsche Bank (DB)) and Diamond Castle Holdings LLC (spun from Credit Suisse (CS)).
Only Goldman Sachs (GS), which operates its own in-house private equity firm and in March 2013 attempted to mount a legal defense to portions of the Volcker Rule, in an effort to continue maintaining its most recent $20 billion private equity fund, continues to run its own LBO division -- it remains unclear when that will be sold or spun off.
Representatives for JP Morgan, AlpInvest and Lexington Partners did not respond to a request for comment from The Deal.