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Secondary investing giant Lexington Partners has blown past the target for its latest co-investment fund.

The New York-based firm has closed its Lexington Co-Investment Partners V LP fund with $3.2 billion, surpassing its initial $2.5 billion target. The new vehicle is more than 33% larger than its predecessor, which closed on about $2.36 billion in 2017.

Lexington makes passive, minority investments mainly in U.S. and European companies alongside buyout and growth funds through its co-investing strategy, which it set up initially for the Florida State Board of Administration in 1998. Over the years, the program has expanded to accommodate other institutional investors seeking to capitalize on co-investment opportunities, which are regarded as offering a way to reduce fees tied to alternative investments.

Lexington’s co-investment strategy is led by firm partners Bart Osman and David Outcalt in New York and James Pitt in London.

Mr. Osman said the co-investment program has enabled Lexington to assemble a more diversified portfolio than it could have through primary funds while reducing risk and giving its investors the benefit of lower fees and carried-interest costs.

The latest fund received commitments from 13 investors, including three who haven’t participated in the firm’s previous co-investment vehicles, Mr. Outcalt said. Returning investors on average increased their commitments by 25%, he added.

New investors contributed significantly smaller amounts, collectively representing just 7% of the total, Mr. Outcalt said. The latest fund’s investors include seven from the U.S. that committed an aggregate of $2.1 billion, he said, adding that the rest are from Europe, Australia, Latin America and Asia.

The makeup of the fund’s investors parallels its investment focus, with plans to deploy 65% to 70% of its capital in the U.S., 20% to 25% in Europe and the rest in other regions, Mr. Outcalt said.

Almost 20% of the latest fund has already been invested, he said.

Mr. Osman said Lexington’s co-investment funds bring together institutional investors that want to make co-investments but can’t duplicate the strategy because of regulatory mandates or staff limitations.

Through Lexington’s funds, Mr. Osman said these investors gain access to Lexington’s co-investment deal flow that is pooled with opportunities that the various investors receive from their general partners, creating a “club approach” to selecting the best investments.

Lexington plans to invest $25 million to $100 million per deal from the new fund, making about 40 transactions each year to construct a diversified portfolio across industries, geographies and vintage years, Messrs. Outcalt and Osman said.

Since inception, the firm’s co-investment program has invested $7 billion in more than 400 companies alongside funds led by over 170 sponsors, Mr. Osman said.

According to documents from the Minnesota State Board of Investment, Lexington’s fourth co-investment fund produced a net internal rate of return of about 16.2%. The public pension investment manager committed $200 million to Lexington’s earlier fund and has pledged $300 million to its latest co-investment vehicle.

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