Paris-based Access Capital Partners closed its seventh fund of funds on €768 million in December and is understood to be returning with its eighth vehicle seeking €700 million. Co-founder Agnès Nahum and partner Alexandre Delos discuss how the firm uses secondaries as a portfolio management tool and how fund duration and market cycles influence its decision to sell stakes.
How does secondaries fit within your FoF strategy?
AN: Access has decided not to have a line of pure secondaries products. If you look at the secondary market, it’s quite pricey these days. You have to be very cautious when doing secondaries and opt for more and more structured secondaries and secondary direct portfolios.
In Fund V and VI we allocated 40 percent to secondaries and it’s likely that in Fund VII we will do 40 percent as well.
AD: NAVs are at an all-time high, competition is fierce, so at the end of the day the prices you have to pay for the assets are very high. We’ve always used secondaries opportunistically as an adjustment variable to the market, and thanks to that non-obligation to deploy capital, we can decide to do more or less, depending on the market cycles. That has been very valuable for deployment.
AN: The secondary market is tough today [as a buyer] but it’s fantastic if you want to sell. Over the past two years we have organised two full sales of assets and we’re currently organising a third one of around €150 million in net asset value for which we are receiving very interesting offers.
How do you make the decision to sell?
AD: There are two criteria. First of all, we consider the fund of funds duration which needs to be respected. Just as the portfolio construction of the fund of funds is conducted with this duration in mind, the end of its lifetime must occur within the required timeframe. The question is when it is appropriate to sell.
Then we have to factor in the cycle of the market. It might be the good point in time to accelerate liquidity in a seller market. The team thoroughly analyses potential arbitrage between the potential upside, the current value in the books, the timing of our funds of funds and discusses the outcomes of such analyses. The final decision is very data driven.
Every quarter, we go through the valuations of every fund of funds to the level of the portfolio companies. Therefore, we have a very strong knowledge of the portfolio valuations, which in our view at this point in time, are pretty high. The EBITDA are at a fairly high level. Prospects for next year may be good, or the EBITDA valuations, the comparables could be lower, so that it may be a good time to lock in some kind of value, given the fact we are approaching the term of the fund of funds.
AN: It’s also a question of relationships with the GPs. We inform them in advance, we explain why we are selling. It’s not because we take a position to sell in a specific fund that we decide to sell everything with the same GP. They fully understand that we want to respect the 10-plus-two years lifetime of a fund of funds.
What is your approach to leverage?
AD: We don’t use leverage. If you pay slightly too high and you’re hoping for exits to take place while paying down your leverage, it can be an issue. Typically, if you want to use leverage you need to buy very diversified portfolios, potentially global portfolios, so that you diversify your risk. Ensuring a liquidity flow will help you pay down your debt. Because of our niche approach, we tend to look for small portfolios or single-line assets which are far less easy to leverage.
We also focus on situations where the GP has a strong role or where we have an advantage in terms of information. You have a fantastic level of information when it comes to the small end of the market. At the large end of the asset class, the secondary market is extremely fluid, well-informed and more liquid. In every fund where there is a large number of LPs, you have a large number of people potentially selling and a large pool of people potentially buying. There’s a lot of information, therefore prices are high.
At the very small end, Access is typically one of the largest LPs. The LPs in small funds are far less numerous, therefore you have far fewer people having access to information. The value of information in a small fund is higher than in a large fund.
We know every player in the small end in Europe and we meet them very regularly so that they think of us if a situation occurs. Any buyout fund of less than €1 billion can be priced in less than two days.
Agnès Nahum, managing partner, co-founded Access Capital Partners in 1998. She has prior experience at BNP Private Equity and spent six years with French insurance company Mutuelle Assurance Artisanale de France, where she was head of private equity. She holds various roles at France Invest, France’s private equity industry body.
Alexandre Delos is partner, head of buyout fund selection, primary and secondaries. He joined Access Capital Partners in 2000.