LP-led pricing strong, GP-led pricing even stronger: Campbell Lutyens

GP-led transactions continue to attract growth over LP-leds partly due to stronger pricing, according to new research by global advisory Campbell Lutyens.

Secondaries Investor was given an advance look at the firm’s forthcoming H1 2021 secondaries market survey results. Here are some key takeaways:

GP-leds continue to dominate

Campbell Lutyens shed some light on the relative strength of GP-led pricing against their LP counterparts: 94 percent of GP-led transactions priced at a 5 percent discount or better, compared with only 32 percent of LP-led transactions.

Nearly one-third of GP-led transactions priced at a premium, up from one-fifth during 2020, whereas only 1 percent of LP-led transactions did so in H1 2021 and the full year 2020, according to the survey.

That strong pricing will continue to fuel the transactions. As pricing of GP-leds remains strong, more GPs will be encouraged to do them as they will be perceived as a viable way to exit, said Gerald Cooper, head of secondaries North America for Campbell Lutyens.

“The strong pricing in GP-led portfolios relates directly to the strength of the GPs and the underlying assets,” Cooper said. “Buyers are able to conduct deeper due diligence and structure alignment with GPs to increase the likelihood of outperformance.”

He added that “single asset deals are accretive to the pricing data, as they typically represent the best assets in a fund with the most meaningful upside”. In contrast, the quality of LP-stake sales on offer has been less consistent, Cooper said.

Despite relative softness, LP deal pricing has recovered substantially from its pandemic lows. Two-thirds of LP deals priced within 10 percent of par or better in H1, compared with just 36 percent through full-year 2020.

GP-leds favour North American funds

Continuation fund deals have grown to become the dominant form of GP-leds, accounting for 92 percent of the processes, according to the report.

Of particular note, North American funds accounted for the majority of GP-led transactions, 68 percent versus 58 percent on average for the preceding four years. That gain largely came from European funds, which represented 25 percent of H1 transactions, down from an average of 34 percent in the preceding four years.

Anyone need the stapler?

Tender offers accounted for just 5 percent of GP-led deals, according to Campbell Lutyens’ survey. This is down about 50 percent from 2020, when the transaction type accounted for 11 percent of GP-led volume, according to Campbell Lutyens’ full-year report. Tenders, in which LPs can sell into a buyer the GP has lined up, are frequently seen where stapled transactions occur.

While the relative frequency of these transactions diminished by an aggregate $1 billion, the staple ratio increased. Put differently: while less of these transactions occurred, when there is a staple on a tender, slightly more primary capital relative to secondary capital is being deployed.