Ardian, the largest firm in secondaries according to the SI 30, sees plenty of green pasture in today’s market.
The Paris-headquartered firm’s latest programme, ASF VIII, is 50 percent deployed, US co-heads Mark Benedetti and Vladimir Colas told Secondaries Investor.
“The dealflow is really unprecedented because you have the wave of LP portfolios that were delayed in 2020 due to volatility and covid are all back in addition to GP-leds,” said Colas. “That’s true for private equity and infrastructure, which is also booming.”
“We had the final close just over a year ago, so we’re definitely not in a rush [to deploy],” Colas added. “There’s no pressure or fear around deployment.”
In contrast, Lexington Partners, the third largest firm in secondaries according to the SI 30, last month returned to market, seeking at least $15 billion, less than 16 months after raising its biggest ever fund. In April, Blackstone president and chief operating officer Jonathan Gray said the firm’s Strategic Partners unit, the second largest in the SI 30 ranking, would return to market “shortly” with its next flagship private equity secondaries fund and is expected to hold a first close in the second half of this year. Gray added he expects the vehicle to be larger than Fund VIII, which closed in 2019 on $11.1 billion.
Unlike some shops, which focus more on the LP or GP side of the opportunity, Ardian is remaining agnostic.
“The number one thing [for Ardian] is quality of the underlying portfolio,” Colas added. “It doesn’t really matter if it’s GP-led or LP portfolio: do we like the underlying assets, do we like the GP, and do we already have [in-house data] coverage?”
Despite newfound market-wide focus on GP-led deals, Ardian has invested in more than 10 GP-led deals over the past decade, according to Benedetti. The difference between that market and this one? Those transactions often involved zombie assets tied up in tail-end funds.
“It’s not new – what’s different is the increased number of opportunities to focus on high-quality assets with good-quality managers,” Benedetti said. Further, Ardian’s co-investment capital is particularly attractive on the GP-led side as it provides the underlying manager opportunities to forge new relationships, he added.
GP-led dealflow today involves good-quality GPs who want to hang on to good assets or are deploying very quickly. Those transactions have high-quality assets with good alignment. The question is pricing, according to Colas.
“In some cases, pricing gets out of hand and you’re better off buying LP portfolios where you have a better chance of a discount and there’s less competition,” Colas added. “The quality is there now on both sides of the market.”
Infrastructure, the next frontier?
Infrastructure funds accounted for just $2 billion of total secondaries volume last year, down 40 percent year over year for the strategy, according to Setter Capital‘s Volume Report FY 2020.
That dynamic could be set to change due to very few large buyers and a large amount of dealflow, according to Benedetti.
To be sure, players are starting to take notice: in April, Brookfield Asset Management said it planned to launch an infrastructure secondaries fund this year; in December, Macquarie Infrastructure and Real Assets, the largest primary infrastructure investor in the world, hired an ex-Strategic Partners executive to lead its new team; in July, Strategic Partners closed the reigning largest dedicated infrastructure secondaries fund to date, its Strategic Partners Infrastructure III, which raised $3.75 billion.
Ardian has closed upwards of $6 billion in infrastructure deals over the past five years – a figure that the firm expects will grow exponentially, Benedetti added.
“We’re seeing billion dollar-plus portfolios for sale in this market, whereas four or five years ago they were much smaller. It feels a lot like the secondaries market back in ’04, ’05, ’06 when it was in its infancy.”
“The biggest deal we ever did [regardless of underlying asset class] was $5 billion,” added Benedetti.
“I think in the next five years we’ll do a deal that’s substantially larger.”