CDPQ tests pricing, pulls back secondary in sign of market challenges

Caisse de dépôt et placement du Québec decided to pull back a portfolio of private equity fund stakes after testing pricing recently, a reflection of the kind of challenges facing sellers in the market dislocation.

The Canadian pension is among several sellers who have chosen to test pricing in the market, rather than engage in a full-out secondaries auction to sell fund stakes. Many LP institutions are on the hunt for liquidity in the general economic slowdown as they battle overweight exposure to the asset class.

LP secondaries sales are challenging right now because pricing is so uncertain. GP valuation marks as of the second quarter show very slight declines in general, not commensurate with the kind of pain felt in the public markets. At the same time, secondaries buyers are demanding discounts to net asset values, a situation in which LPs would be forced to lock in a loss even as their PE portfolio continues to show relatively strong performance.

“We’re hearing from CIOs, ‘Right now I’m getting beat up so hard in other parts of the portfolio, I don’t want to take a hit all at once by doing a straight secondary’,” a secondaries adviser recently told affiliate title Buyouts.

A large sale that was officially pulled recently came from Washington State’s pension system, which was selling a portfolio of PE stakes valued at up to $2 billion, Buyouts previously reported. Washington State officially pulled the sale after receiving bids it considered too low, sources said.

CDPQ, which has sold in the past, never launched an official process, choosing instead to wait until the market stabilises, according to a source. The system worked with Evercore on building the offering, which would have been valued at more than $1 billion, several secondaries sources said.

The situation differs completely from CDPQ’s experience earlier in the year, when it sold a nearly $3 billion portfolio of private equity stakes to Ardian, Buyouts previously reported.

In the first half, the median high bid across all strategies in the first half was 92 percent of net asset value, according to Greenhill. Pricing for buyouts funds fell 9 percent, to 88 percent of net asset value in the first half of the year, Greenhill found. Prices have continued to fall throughout the summer and into the fall, sources told Buyouts in recent interviews.

However, LPs appear to be growing more willing to sell in the tight liquidity environment. Evercore reported in its first-half volume survey that 77 percent of respondents said they sold in GP-led asset-based deals, up from 64 percent in 2021. While asset deals like single and multi-asset continuation fund processes are different, the numbers show increasing appetite among LPs for liquidity in secondaries.

CDPQ managed about $82.5 billion in private equity assets as of 31 December, the system said, which accounted for about 19.7 percent of the system’s total portfolio. More than 75 percent of the portfolio was in direct investments, CDPQ said on its website.

CDPQ sold a $1.3 billion private equity portfolio in 2018 to an investor group led by Goldman Sachs.

– This report originally appeared on affiliate title Buyouts.