Children of the revolution

As the secondaries market continues to drive change in the world of private capital, there are lessons to be learned, according to panellists at the BVCA’s annual conference.

Revolutionaries. That was the theme of yesterday’s British Private Equity & Venture Capital Association’s annual summit, emblazoned across the conference materials in arresting Soviet-style Constructivist design (this year is the 100th anniversary of the Russian Revolution).

If it’s tricky to think of a genuine link between Russia in 1917 and private equity in 2017, then maybe a discussion about secondaries – a section of the market that is at the forefront of dramatic change – could be the answer. Both the October Revolution and a number of this year’s GP-led secondaries transactions saw two sides in conflict over the status quo…

Executives from BC Partners, Lexington, Arcus Infrastructure Partners and advisory firm Rede Partners convened for a session to share their thoughts. Here are the five points we found most interesting from the 45-minute discussion.

1  BC Partners thinks all primary GPs should consider secondaries

Speaking about the firm’s $1 billion stapled deal with Lexington over the summer, BC’s head of investor relations management Laura Coquis said the firm was initially “incredibly apprehensive” about even putting together a deal unless it was convinced its LPs wouldn’t get burned.

“One of the criteria that we absolutely had was, for those [LPs] that just want to ignore it, they have the option to ignore it and everything continues as they expected when they made their original commitment with us,” Coquis said.

But, she added, all GPs should think about how they could use secondaries – as long as everyone winds up happy. 

2  “Win-win-win” isn’t just marketing spiel

Primary managers aren’t going to go along with a secondaries proposal if it has a negative impact on their long-term investors…well, not all of them anyway. In BC’s case, several options were presented to the firm that didn’t support its investor base, Coquis said.

“They perhaps would have been good for us and good for the secondary investor, but we could not get comfortable that they would be good for those that would not want to participate, and so we dismissed them entirely.” 

3  Primary managers need time to prepare for a secondaries deal

Making a deal work means putting the preparation in – both internally and with their LPs, according to Stephan Grillmaier, head of investor relations at Arcus. The London-based firm worked with Campbell Lutyens last year on a tender offer on its 2007-vintage fund, with Dutch pension manager APG leading a group of buyers to acquire €800 million worth of stakes in the vehicle.

“It didn’t come as a surprise for the LPs, it didn’t come as a surprise for us,” Grillmaier said, reflecting on the deal. Preparation, transparency and a competent advisor behind the scenes orchestrating the deal ensure a smooth transaction, he said.

4  PE becoming a more liquid asset class shouldn’t affect GP-LP alignment

As the market sheds its stigma, will it cause misalignment between GPs and LPs? Will managers just restructure funds if they are unable to make exits? No, according to Rede’s Yaron Zafir.

“If you think about the public market, you have people trading in companies in and out all the time, no one thinks that causes an issue for the performance of the underlying companies.” If anything, that drives performance of the underlying companies, he added.

5  The state of European secondaries is positive

A straw poll of attendees in the room found that almost 40 percent believed there will be “constant innovation with more differentiation and products”. Music to our ears.

Hours after the panel, we broke the news that Apax Partners had pulled its GP-led process after discussions with Fund VII’s LPAC. While we didn’t get the chance to ask panellists for their thoughts on this, we’d love to hear yours. Email us: or @adamtuyenle