Congratulations on your fund close, that’s great to see. I understand you’ll focus on mid-sized deals – how do you define this?
Steve Lessar: Thank you. Yes, we designed the Secondary & Liquidity Solutions (SLS) Fund to focus on mid-sized transactions, where we believe there are attractive investment opportunities in today’s market. We think there is a “gap” in the market for experienced secondary investors comfortable leading complex transactions, but where the equity required is below the larger funds’ radar.
Typically, we are looking to invest $100 million to $300 million per transaction and differentiate by our experience and the benefits that being a part of the broader BlackRock platform brings. By partnering with our investors or tapping into other pools of capital, we can flex up for larger opportunities, but the mid- sized opportunities are where we are spending most of our time.
SLS has invested in more than 15 transactions so far. Could you walk us through some of these transactions?
Veena Isaac: That’s right – we’ve invested in over 15 transactions and at this point, we’re relatively well balanced between GP-led opportunities and traditional LP transactions. On the GP-led side, we have led a variety of deals, with both mid-market and large-cap managers. These have typically been situations where there is an existing strong relationship with the manager, and/or view of the underlying assets, and where both parties are focused on developing a strategic relationship. We have also completed several opportunities with high-conviction emerging managers and GPs who are keen to expand on their relationship with SLS and BlackRock.
On the traditional side, we’ve been equally active, and transactions include structured acquisitions of anchor positions in funds, tail end opportunities, acquisitions of subsets of funds from larger portfolios, and portfolios of LPs stakes and co-investments. Across our portfolio, we remain focused on balanced portfolio construction and are comfortable taking concentrated positions where we have high conviction.
The press release mentions that SLS has deployed a “significant amount of capital” around the market dislocation at the start of the pandemic. What types of deals were these, and how much capital did you roughly deploy?
Konnin Tam: While the secondaries market overall pivoted very significantly to non-traditional and GP-led deals after Q1 2020, our investment activity was fairly balanced, and we sought to remain steady and disciplined in our deployment throughout the various stages of the pandemic-afflicted market. Given the muted overall activity in 2020 relative to 2019, our consistency did translate to investing in a balanced set of opportunities across high-quality traditional and non-traditional GP-led fund solution and special situations deals. We deployed almost $900 million across various pools of capital in secondaries deals in 2020.
What is the SLS team’s approach to deal sourcing? How many transactions has the team led versus been part of a syndicate on?
VI: Given secondaries is inherently an opportunistic strategy that continues to evolve, the SLS team’s approach has been to source broadly across a wide range of transactions, and leverage the relationships, investment expertise and information access benefits of the broader BlackRock platform, to identify the best risk return at any point in time, and where we identify structural alpha at entry. We work with GPs, external advisors and counterparties, as well as internal BlackRock teams as part of our sourcing efforts. We have taken a lead position in a majority of our transactions but are open to being co-investor in select situations where we have a strong view of the manager and/or underlying assets, but where being a lead may not make sense for us.
Do you invest in single-asset deals? If so, how many such deals are you able to invest in with your new fund?
SL: Our strategy is highly opportunistic. We pursue highly diversified multi-fund portfolios and single asset deals – and everything in between – with the objective to build a resilient portfolio that offers the best risk-return opportunities we see.
One of the benefits of the BlackRock platform is that we have the breadth and depth to source broadly and triage deal leads rapidly, allowing us to focus on opportunities that, in our opinion, offer the best relative value at that time. We think it is very important to be able to pursue a wide variety of transaction types and not be limited to a specific sub-set of the secondary market.
How do you see the future of the secondaries market? Is $1 trillion in annual deal volume a lofty figure or something attainable?
KT: We believe the private secondaries market is unique in being able to clearly point to empirical drivers of future growth. It’s certainly possible for the secondaries market at some point in the future to reach levels that are multiples of the $90 billion to $100 billion of annual dealflow seen today, given the continued growth of private markets overall — both fundraising, investing activity and outstanding unrealized net asset values in portfolios– and the continued acceptance of investors (both LPs and GPs) utilising the secondary market as a dynamic portfolio management tool or partner, and not simply a source for liquidity during constrained markets.
Small percentage changes in both the size of private markets and what is transacted each year could get us to much larger annual transaction volumes than you see today. BlackRock and SLS certainly seek to be a part of the liquidity solution landscape well into the future and grow with the market.
Steve Lessar, Veena Isaac and Konnin Tam are managing directors within BlackRock’s Secondary & Liquidity Solutions business. Lessar and Tam are co-heads of private equity secondaries.