Buying opportunities are set to increase as both distressed and mainstream sellers adapt to a market changed by the coronavirus crisis, according to Coller Capital‘s founder and chief investment officer.
Sellers who do not have the luxury of waiting until there is more clarity on valuations and pricing – such as those facing near-term capital shortfalls or covenant breaches – as well as those selling for portfolio management reasons, will create dealflow that is “plentiful”, Jeremy Coller wrote in the firm’s latest Annual Report and Financial Statements published in July.
“Transactions volumes are likely to rise significantly after an initial period of market dislocation, as distressed sellers are joined or replaced by mainstream investors starting to re-shape their portfolios for a new economic reality,” he wrote.
While the global pandemic has created stresses and strains in the market, there are opportunities for secondaries funds, he added.
“The GFC provided Coller [Capital] with many good investment opportunities, and we expect the current crisis to do the same.”
Deal volume in the first half of the year fell almost 60 percent to around $18 billion compared with the same period last year, according to advisor Greenhill’s mid-year report. Pricing fell to an eight-year low, with average fund stakes trading at 80 percent of net asset value.
Such dynamics are likely to remain, with pricing staying “significantly lower” than the average of recent years, according to Coller.
The market veteran noted that buyers need to be selective when choosing assets in a time of market dislocation, and that acquiring assets “indiscriminately across the market” would invite too much volatility and risk.
Opportunities brought about by the coronavirus crisis differ from the 2008 global financial crisis because the GFC was a cyclical phenomenon, whereas 2020’s pandemic is structural, Coller noted.
“Where the GFC created a demand-side shock, today’s crisis is damaging both demand and supply,” he wrote.
Momentum in the secondaries market should therefore grow faster than it did during the GFC as investors are more familiar with secondaries than they were in 2008-09, and many have larger and more complex portfolios, Coller added.
Coller Capital’s net profit for the year ending 31 March rose 15 percent from a year earlier to £3.55 million ($4.64 million; €3.94 million). Revenue rose 14 percent to £75.2 million.
The firm is seeking $9 billion for Coller International Partners VIII, which launched in the first half of 2018. It has raised at least $4.89 billion for the vehicle, according to Secondaries Investor data.