The terms of GP-led deals are becoming increasingly manager-friendly amid the coronavirus crisis, a panel has heard.
The proportion of carry that GPs are willing to roll into a continuation vehicle has diminished as strong buyer demand allows managers to drive better terms, said Sunaina Sinha, managing partner of advisor Cebile Capital, speaking at sister publication Private Equity International‘s Women in Private Equity Forum on Wednesday.
“Gone are the days when buyers would say, ‘100 percent has to be rolled into the continuation fund.’ We just completed two transactions where you have between 50 percent and 70 percent of the crystalised carry being rolled and the rest being taken off the table by the GP. [Seventy percent] is the new balance in the market.”
There is also more “horse-trading” around the economics of continuation funds, she added, with the traditional 20 percent profit share over a hurdle of 8 percent coming up for debate.
“There are a lot of transactions coming to market in the GP-led space, and with buyers hungry for this kind of complexity, GPs can start at a high ask,” said Martha Heitmann, a partner with LGT Capital Partners. “The alignment, understanding the dynamics and all the complexity behind the terms is critical, not just looking at the economics.”
Some of the richly valued single-asset deals completed immediately prior to the pandemic or during the crisis could become “big holes in secondary buyers’ portfolios”, she added. “It’s a big risk factor.”
Secondaries Investor is aware of at least seven sizable single-asset secondaries deals that closed or launched in the period after the first coronavirus-induced lockdown this year.