AXA raises £5bn to buy investment portfolios from banks

Banks, which urgently need to fortify their capital buffers, are in a rush to offload private equity assets they spent billions on in the heady days before the financial crisis, causing a flurry in so-called secondary sales.

“AXA Private Equity predicts a significant increase in activity in the secondary market over the next two years,” the investment arm of French insurance group Axa said in a statement yester-day.

The firm expects between $40bn and $50bn of bank assets to come up as a result.

New rules for capital known as Basel III make it much more costly for banks to hold risky assets, and they need to free up all the capital they can to support profits in their core lending and investment banking businesses.

Private equity portfolios – which expose the banks to any weakness in the companies that are part of them – are among the assets requiring higher capital buffers, making them an obvious target to shed for many banks.

Axa Private Equity had initially been after some $3.5bn for its fund but ended up raising more than double that amount at $7.1bn.

An additional $900m will go towards its primary fund of funds, the group said.

Traditionally, private equity houses buy companies with large amounts of debt financing.

They then aggressively cut costs, improve performance, and sell it on for a profit, usually through a stock market flotation.

If they find no outside buyers, they often flip assets between rivals.

The model for AXA Private Equity’s secondaries fund is slightly different in that it takes investment portfolios off the hands of banks.

Last year, AXA bought a $740m portfolio of private equity holdings from Barclays and earlier acquired a bumper $1.7bn portfolio from Citigroup.

Its fundraising success follows US Group Lexington Capital, which last year raised $7bn, then the largest ever fund raised by a secondaries specialist.