Ardian: large portfolio sales will return in H1 2017

Big portfolios are likely to hit the secondaries market in the first half of 2017 as limited partners seek to rebalance their portfolios, according to Ardian’s head of US Benoît Verbrugghe.

“We know that a couple of big pension funds are seeking to rebalance their portfolios,” Verbrugghe said.

“We believe that big transactions will be on the market, probably three or four [in] Q1-Q2 in the US.”

Speaking on Wednesday at a panel at the IPEM 2017 conference in Cannes on finding opportunities in the secondaries market, Verbrugghe said that while the market is seeing less dealflow from banks thanks to the five-year extension offered by the US Federal Reserve to comply with the Volcker Rule, pension funds and sovereign wealth funds are actively managing their portfolios, throwing up opportunities for buyers.

Panellists agreed that Asian sellers were accounting for a larger proportion of dealflow than they had done previously, with Hamilton Lane’s Richard Hope noting that, outside the US, the firm’s largest amount of dealflow was coming from China.

“We’ve seen fund restructures there,” he said. “The very large LP in a very big fund, we’ve seen a few of those as well – a corporate has invested in either a separate account in a large GP or in one of the large GPs’ funds, and all of a sudden they’ve done a few co-invests and they’re over-exposed and they’re backing out.”

“Some of the sovereign funds were thinking to get rid of some large positions,” Verbrugghe said, adding that some of them have been disappointed by the returns some of these funds have yielded.

There are also those who have ended up overcommitted to private equity by making large commitments – up to $500 million to a single fund – and have wanted to scale back.

While there are reasons to expect increased activity at the larger end of the market during 2017, Christophe Nicolas, a managing director in the secondaries team at AlpInvest Partners, pointed out that due to the correlation with the primary market, there may be fewer opportunities overall in the coming years.

“The secondaries industry in general tends to buy funds that are five-to-eight years old, most of the time. So in those years – ’16, ’17, ’18 – we’re going to bump into the ’09, ’10 and ’11 vintages, which we know were not as big as the previous vintages,” Nicolas said.

“So, structurally, we also have less paper to buy, just because there were not many funds that were raised during those years. That could also explain why the market could be a bit smaller for two or three years.”

Panellists noted a shift in the asset mix within the secondaries market, with an increase in infrastructure, private real estate and private credit transactions. However, they agreed that this is not to be overstated.

“The private equity opportunity still dwarfs anything else,” Nicolas said, adding that AlpInvest has seen some private credit opportunities that “don’t make the cut” for the firm’s return requirements, and that the firm does not invest in infrastructure secondaries.

Nicolas said the excitement in the market caused by the California Public Employees’ Retirement System’s $3 billion real estate secondaries transaction in 2015 distorted the perception of the size of the opportunity.

“Real estate I think is an interesting market. In my view it will never be a big market, just because the primary real estate fund market has not been as deep as the private equity market,” he said.

Buyouts still account as much as 85 percent of activity at montana capital partners, co-founder Marco Wulff told delegates.

“We need to get to our target return for those investments, and infrastructure, real estate, credit really don’t have that high multiples,” he said.