Ardian’s Decannière on investing $19bn during a crisis

Ardian UK head Olivier Decannière discusses ASF VIII, transaction leverage and where it plans to invest all its dry powder.

This week, Ardian closed one of the largest private equity fundraising programmes ever.

The Paris-headquartered alternatives manager collected $14 billion for Ardian Secondary Fund VIII and $5 billion for co-investments from investors such as the California State Teachers’ Retirement System, Florida Retirement System Trust Fund, Cathay Life InsuranceFubon Life Insurance and State of Michigan Retirement Systems.

Head of Ardian UK Olivier Decannière spoke to Secondaries Investor about the fundraise and how it plans to put large amounts of dry powder to work in a covid-affected market.

Decannière: a maturing industry needs a secondary market

Is this a good time to have the world’s largest secondaries fund to invest?

Time will tell. When we initiated fundraising, everybody was expecting a financial crisis, a stock market bubble. We told our limited partners, “This vintage might face a crisis – we don’t know when, but we think we are prepared.” Then the covid-19 crisis came from a place that nobody was expecting.

I think it could raise opportunities. It could change the rationale of some larger institutions for addressing the secondaries market. They may come mainly to re-balance maturing portfolios or because they anticipate a degree of crisis. We don’t intend to deploy the fund differently than initially anticipated. Having dry powder and such a large, global platform – if there is an opportunity we’ll take it.

Do you expect to have to extend the investment period of ASF VIII?

We have a five-year investment period – pretty standard. We started committing the fund in 2019 and it is now 40 percent committed. Our first focus was on the quality and resilience of the deals, the impact of the crisis on valuations. We had a lot of calls with clients to reassure them and most were confident that it’s perfect timing to have this dry powder. Usually we use two or three years to deploy our fund. I don’t think there will be any need to extend.

The amount dedicated to co-investments has increased over time, so that’s a clear focus. This is one of the main services we provide to LPs – should you have the appetite, we are ready to give free co-investments.

Are you doing preferred equity in the absence of more typical secondaries deals?

I know more of our competitors are doing them. I also see the great success of players dedicated to that kind of strategy. We don’t. We have been successful across different crises and we believe doing pure equity, structuring deals the way we are used to, is the best way. We talk to sovereign funds, pension funds and insurance companies, with whom we have an established relationship, and in due time, when they decide to sell, we make the acquisition.

We collect a lot of information on the funds in our portfolio. We track those funds, whether there is an opportunity or not. We are running financial analysis every quarter to make sure that when an opportunity comes, we are ready to put a price in the market.

Will there be enough distressed dealflow to make up for lost opportunistic transaction volume?

If you look at the market over five years, the increase in volume each year has been significant. Why? Because the private equity industry is maturing and a maturing industry needs a secondary market.

Volume in 2020 will definitely be much lower than 2019. I’m discussing with colleagues, peers, intermediaries and nobody knows: $15-, $20-, $30-billion? The fourth quarter will make the number. If it restarts in Q4, maybe $20 billion-$25 billion? Definitely, I think 2021 will be a good time to deploy in the secondaries market, when people gain a bit of visibility, when they realise where the bottom was and what kind of recovery we can expect.

Are you able to access transaction financing as easily as before?

Banks do answer the phone. We’ve had approaches from some banks, mainly from the US, saying, “Look, in the coming weeks or months, should you need any financing, I think we’re ready to do it.”

We were afraid the economics would drop significantly and the loan-to-value would move down. It has but not by much – we are talking about 10 basis points between pre-crisis and post-crisis, which is almost nothing. We used to have 50-55 percent maximum LTV. We are now discussing 45-49 percent. It’s not huge when you consider the crisis’s impact on valuation.

At the end of 2019 and beginning of 2020, we saw the strong return of deferred payments. A lot of the sellers were not necessarily in need of cash – they were just trying to sell and implement a new strategy. We structured a very large transaction with a deferral of two years. That trend will continue through the crisis.

Your last early secondaries fund, 2016-vintage AESF VI, closed in 2018 on $1.23 billion. Will you be raising a successor soon?

There’s still a bit of money to be deployed in that fund. We are not rushing anything. In due time, we will address the market for the next fundraising. There’s a lot to do and a lot to see in the coming months.

Olivier Decannière joined Ardian in 2001 when it was known as AXA Private Equity. He is head of Ardian UK and a member the firm’s executive committee.