Ardian’s secret recipe

Benoit Verbrugghe, head of Ardian US, reveals the secondaries firm’s strengths, from its in-depth knowledge of assets obtained through its primary fund of funds business to its proprietary technology.

What sets Ardian apart from its competitors in the secondaries market?

More than anything else, it’s our ability to do large complex transactions. We have $50 billion in assets under management. Because of our size, proprietary database and market knowledge, we are positioned to execute where others can’t. We are fortunate because much of our most detailed knowledge about the assets in any given portfolio is directly related to how active we are in primary funds of funds. In our fund of funds business, we manage $30 billion of some 1,200 funds comprising around 10,000 investments in the underlying portfolios. So with that amount of visibility, we can work with sellers to review portfolios closely, know which assets make sense for Ardian to buy, and very importantly, we can price the assets with confidence.

How important is technology to your secondaries investment process and ultimately benefit the execution of transactions?

Our success is the result of a team of really smart people. They are without a doubt, our greatest asset. But to support them and give them the knowledge they need, we have developed a rigorous approach to managing our investments via a proprietary database that we have built over many years. We gather information from our GPs quarter by quarter, company by company, and it’s all logged systematically into our database. That’s what gives us the visibility into existing and potential investments, and provides our 60 investment professionals with high-quality quantitative analysis that we can then use to make informed decisions. I think sellers really like working with Ardian because when opportunities arise, we can act with scale and speed. We really do have the analysis at our fingertips so whether it’s a decision to proceed with a transaction or decline it, we can make that decision quickly.

How selective have you been this year in terms of transactions you decide to pursue?

We continue to see an ever-growing and strong deal flow which allows us a high level of selectivity; for every deal we close, we turn down a number of others. Last year, we declined over $22 billion in secondaries deals. We work against an important set of criteria when evaluating any potential transaction. Most importantly, we need exceptional visibility into the underlying assets of the portfolio in question. We are only ever interested in high-quality assets – that’s been an essential part of our strategy since day one. In our view, no discount is big enough on a bad asset. That consistency regarding high-quality assets has served us (and our investors) very well.

What do you anticipate regarding transaction volume for the year compared to last year?

Deal flow is likely on track to be somewhere between $30 billion to $35 billion or more this year.  Every year for the foreseeable future, I think it’s fair to say that we can anticipate between $30 billion and $40 billion in transaction volume. Some of the largest banks, especially in the US, still have a significant level of private equity portfolios on their balance sheets that they plan to offload. So we will continue to see sales coming from the banks before the year’s end.

And increasingly, pension funds, sovereign wealth funds and family offices are using the secondaries private equity market as a tool to liquidate some of their positions because perhaps they need to rebalance, or they need to adjust their strategy, they want to manage actively their portfolio. The extension of that is that we are now seeing some banks which are re-investing in private equity. So it’s a cycle and the various sellers can take advantage of the liquidity offered by the secondaries market. Private equity is no longer an illiquid asset class and the secondaries market has become a robust active market itself.

How active is Ardian in some subsectors such as energy, infrastructure and real estate?

We have two significant dedicated secondary side-pockets – one for energy and one for infrastructure. The infrastructure segment has performed well and we start to see some attractive opportunities in the energy market that make sense for our investors.