Portland-based investment and advisory firm Arnerich Massena has invested between $500 million and $700 million in private equity fund stakes on the secondaries market since it was founded in 1991 – but has never paid par or above, according to chief executive officer and senior advisor Anthony Arnerich.
“To date, we haven’t purchased any assets for a premium,” Arnerich told Secondaries Investor. “I always like the markets when there are few players and the discounts are big and broad.”
Arnerich acknowledges that discounts aren’t as easy to come by these days.
In fact, recent Cogent Partners data suggests secondaries prices are the highest they’ve been since 2007. Average high bids for buyout transactions – which is where Arnerich sees the most secondaries activity – reached 100 percent of net asset value during the first half of 2014.
But Arnerich maintains he hasn’t seen a “gargantuan” number of portfolios selling at premiums.
“I would say there are partnerships trading at premiums, but the vast majority trade at discounts considering the vast majority of funds are not premium funds,” Arnerich said.
Arnerich’s point of view is in line with data from Setter Capital, which showed the premium prices came from the most sought-after funds during the first half of the year. Pricing for a fund stake in a manager that isn’t as desired can potentially be materially lower.
Still, Arnerich Massena continues to focus on discounts and most of its secondaries purchases have come from fund managers the firm has invested with on the primary market. The firm focuses on committing to private equity funds that invest in the agriculture, water, health and welfare and non-carbon energy industries.
On the secondaries sell-side, Arnerich Massena isn’t as active and remains more opportunistic.
“Our sell-side activities are driven by a chance in direction of an individual or a fund. When we’ve bid out a private equity fund in the marketplace it’s usually because of a change in leadership or a death,” Arnerich said.
Arnerich Massena also keeps an eye on secondaries funds and can commit its clients’ capital to the funds. The firm previously committed to a few Capital Dynamics funds, but doesn’t commit to secondaries funds on a consistent annual basis, Arnerich explained.