Discounts for European fund stakes are becoming ever harder to find, with increasing competition forcing at least one secondaries firm in the lower end of the market to change its regional or strategic focus.
“The macro play within Europe has changed,” said Christian Böhler, the principal in charge of secondaries at Akina, a Swiss fund of funds. “Two or three years ago, you still found €5 million or €10 million European small to mid-market pieces in the secondary space at decent discounts. Today, they’re hardly available any more.”
Some buyers searching for high discount deals in Europe used to focus on southern Europe and have now shifted to markets such as Ukraine and Russia where they can still find attractive opportunities and pay up to 70 percent discounts on net asset value (NAV), Böhler said.
“The higher the political or macro risks, the higher the potential discounts, and in Europe that’s currently far eastern Europe,” he said.
In July, secondaries advisor Greenhill Cogent predicted higher interest rates, further instability in Europe and equity market volatility would lead to higher relative pricing for higher quality assets and those more insulated from these risks, according to its Secondary Market Trends & Outlook July 2015 report. Böhler noted even assets at the lower end of the mainstream European market are selling at high prices.
Due to high pricing and heightened competition, participants are also being pushed to do more complex deals such as GP-led restructurings at the lower end of the market as simple deals are more scarce, Böhler said.
“The market is much more competitive, and also the mid-size to larger players are picking up smaller pieces left and right,” he said, adding that complexity and need for swiftness to identify market dislocations has massively increased at the lower end of the market.