Valuations in the private equity secondaries market have seen a huge reversal this year, if the recent trading prices of interests in Blackstone’s $21.7 billion fifth fund and Bain Capital’s $10 billion tenth fund are any indication. Interests in both funds are currently trading near par, according to several sources.
Sources told PEO they have seen mega-funds make a huge recovery this year, and buyers are snapping up the fund interests that last year seemed untouchable. Last year, bellwether mega-funds including Blackstone V were trading on the secondaries market around 30 cents on the dollar, according to several secondaries sources. Secondaries prices are typically expressed as a discount to, or premium to, the GP-assigned “par” value.
A source said Blackstone and Bain have marked the portfolio companies in their funds to levels to which buyers in the secondaries market now agree. “Those funds have been written down and buyers are expecting decent returns from the adjusted basis of the assets,” the source said.
Other factors that have contributed to the rise in mega-fund interest values include the success some big private equity firms have had in pushing back debt maturities on key portfolio companies. Some mega-funds have “done a good job of, in some cases, de-risking, and in other cases, extending the amount of time they have to work through specific company issues they have that scared buyers”, another source said.
In addition, many market participants agree the economy has become more stable since last year, a perception that tends to push fund interest prices nearer to par. While uncertainty remains, “people feel comfortable they know what risk is out there”, the source said.
Buyers these days include large secondaries firms and some public pensions looking to get quick exposure to certain managers. Many of the big secondaries players like Landmark Capital Partners, Pantheon and Lexington Partners have dry powder to spend on new deals, though one source told PEO firms with freshly raised funds are not yet feeling pressure to find deals as they have a few years to draw down funds.
Several large deals have transacted on the secondaries market in 2010, also different from last year, when smaller, one-off type deals characterised the market. Recently, AXA Private Equity agreed to buy $1.9 billion in LP stakes from Bank of America.