Ardian’s return expectations revealed

Ardian is aiming high with its next secondaries fund, even as return expectations start to decline across the strategy.

The Paris-headquartered secondaries giant’s latest fund ASF VIII is targeting a net multiple of 1.6x and a net internal rate of return of 16 percent, it was revealed in a broadcast of the University of Houston System’s August board of regents meeting.

The fund will look for transactions of $1 billion-plus and target more complex deals, said Lucy Chang, an investment director at Cambridge Associates, who recommended the endowment make a commitment of $7.5 million.

She added that Ardian’s ability to leverage its fund of funds platform, which tracks more than 1,000 private funds and 10,000 underlying companies, allows it to price transactions sometimes “within hours” and is a significant selling point.

ASF VIII is targeting $12 billion, Secondaries Investor revealed in May.

Ardian’s 2015-vintage ASF VII and 2014-vintage ASF VI funds have so far returned respective net multiples of 1.31 and 1.33, and net IRRs of 23 percent and 16 percent, according to Secondaries Investor’s Performance Watch series.

Return expectations across secondaries have been slowly declining in line with the growth of dry powder and increased competition.

According to the Secondary Market Survey and Outlook published in March by UBS, in 2017, 52 percent of buyers expected to achieve less than 17.4 percent gross IRR on an LP transaction. That proportion of buyers was 46 percent in 2015. In 2017, 86 percent of respondents expected a gross multiple of 1.74x or less from LP transactions, compared with 81 percent in 2015.

A similar picture emerges in GP-led deals. In 2017, 78 percent expected to return 22.4 percent gross IRR or less from complex deals, versus 54 percent in 2015. Seventy percent of respondents in 2017 expected to return 1.99x or less in gross multiple, compared with 63 percent in 2015.

Secondaries buyers are underwriting at a multiple of 1.2x to 1.4x and an implied IRR of 10 percent to 15 percent on an unlevered basis, Bernhard Engelien, a managing director at Greenhill, told Secondaries Investor in August.